Will Raffles Education sell off more land?

Chances are high that its recent sale of campus land is only the beginning of an unloading spree, says DBS.

The brokerage firm pointed out that it was a golf club that won the latest 423k sm land sale in Raffles Education's OUC campus. Based on how golf clubs operate, it will need substantially more land that the company may also provide in the future.

Here's more from DBS:

Selling 423k sm of its 3.31m sm OUC campus land area. RLS's share price opened 5.4% higher today on announcement of a land sale transaction. The company has agreed to sell and transfer land use rights for four land parcels of c.635mu (c.422,910 sm) in Langfang Development Zone Hebei to Langfang Fenghe International Golf Club.  The transaction includes some land and properties, for RMB1.047bn (S$208m). The company cited that the finer details of the agreement have yet to be finalised and that the land transfer will be subjected to relevant authorities' approval. The transaction will be completed in four separate parcels.  Management is hopeful that the four phases including 2-3 months of government approval can be completed by Dec 2012.

More land sales may come. We observe that the buyer is a golf club, which will potentially develop the land into a golf course. A c.635mu land area can only accommodate a 9-hole golf course. The average land size for an 18-hole course will require approximately 900mu to 1,000mu. We believe it will be more scalable for the golf club to operate at least an 18-hole course. Hence, the golf club is likely to look into more land purchases after this transaction.

Potentially 3 Scts more in dividends. Proceeds will be used to retire outstanding loans of S$150m used for the purchase of OUC in 2007. We estimate that if half of the remaining amount is reserved to fund business expansion, RLS could potentially pay another 3 cts of dividends from the excess sale proceeds. We believe there should be minimal impact on P&L since the land has been revalued in its books.