Our Ref : Ref: QVM/R3-IA/180502

Date : 02/05/2018

Report 3:
Investment
Appraisal Report
Investment Appraisal Report
Title No. Geran 23908 Lot No. 228
QVM Consultancy Sdn. Bhd.

Table Content

1.0 Introduction 1

2.0 Option 1 – Proceed With Proposed Development 1

3.0 Option 2 – Sell the Land 7

4.0 Comparison for Proceed Development vs Sell the Land 8

5.0 Conclusion 9

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Investment Appraisal Report
Title No. Geran 23908 Lot No. 228
QVM Consultancy Sdn. Bhd.

Chapter 1 : Introduction

In this report, we will carry out investment appraisal of the proposed development,
compared with another option to directly sell off the land to another developer.

Chapter 2 : Option 1 - Proceed With Proposed Development

In this section, the GDV and GDC of the proposed development would split into timeline
of six years. That is two years of planning and approval stage, and continue to four
years of construction stage. This is the shortest possible timeline for this proposed
development to be completed.

Note that we had allocated financing expenses as part of GDC, however the actual loan
to be taken would greatly affect the outcome of calculation. Hence, here we assumed
that financing cost is evenly split among project timeline without making assumptions of
cash-inflow from bank loan. When the project is commenced, obtaining bank loan as
project financing method could leverage the project’s profit, and able to obtain higher
IRR compared to without bank loan.

The cash-inflow timeline would only able to start in the third year, which is when the
commencement of construction stage. We assume that the cash-inflow would tie back
to schedule of progress billing based on construction progress as follows :-

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Investment Appraisal Report
Title No. Geran 23908 Lot No. 228
QVM Consultancy Sdn. Bhd.

Item %
1 Immediately upon the signing of Sales & Purchase Agreement. 10
Within twenty-one (21) working days after receipt by the Purchaser of the Vendor's
2
written notice of the completion of -
The work below ground level of the said Building comprising the said Parcel
10
(a) including foundation of the said Building
(b) The structural framework of the said Parcel 15
(c) The walls of the said Parcel with door and window frames placed in position 10
The roofing, electrical wiring, plumbing (without fittings), gas piping (if any) and
10
(d) internal telephone trunking and cabling to the said Parcel
(e) the internal and external finishes of the said Parcel including wall finishes 10
(f) the sewerage works serving the said Building 5
(g) the drains serving the Building 5
(h) the roads serving the said Building 5
On the date the Purchaser takes vacant possession of the said Parcel with water and
3 12.5
electricity supply ready for connection
On the date the Purchaser takes vacant possession of the said Parcel as in item 3 and
to be held by the Vendor's solicitors as stakeholder for payment to the Vendor within
twenty-one (21) working days after the receipt by the Purchaser of the written
4 2.5
confirmation of the *Proprietor/Vendor's submission to and acceptance by the
Appropriate Authority of the application for subdivision of the said Building or Land, as
the case may be.
On the date the Purchaser takes vacant Possession of the said Parcel as in item 3
5 and to be held by the Vendor's solicitor's as stakeholder for payment to the Vendor as 5
follows-
Two point five per centum (2.5%) at the expiry of eight (8) months after the date
(a) the Purchaser takes vacant possession of the said Parcel; and
Two point five per centum (2.5%) at the expiry of twenty-four (24) months after
(b) the date the Purchaser takes vacant possession of the said Parcel.

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Investment Appraisal Report
Title No. Geran 23908 Lot No. 228
QVM Consultancy Sdn. Bhd.

On the other hand, for cash-outflow timeline, the land cost would be incurred first.
Construction cost only would start incurring at the year 3 during construction stage. The
other development cost such as professional fees, statutory contribution fees, sales and
marketing costs, and other land costs would incurred from planning and approval stage,
until construction completion stage. The financial cost estimated based on total
construction and development costs at every stage.

Cumulative
Before Tax Cash
GDV GDC Before Tax Cash
Flow
Flow
Land Acquisition Y0 116,880,000.00 (116,880,000.00) (116,880,000.00)
Y1H1 8,835,905.44 (8,835,905.44) (125,715,905.44)
Pre-Development Y1H2 9,081,991.12 (9,081,991.12) (134,797,896.55)
Stage Y2H1 5,383,536.74 (5,383,536.74) (140,181,433.29)
Y2H2 18,816,073.15 18,816,073.15 (158,997,506.44)
Y3H1 97,674,562.50 38,624,902.62 59,049,659.88 (99,947,846.56)
Y3H2 60,312,281.25 38,730,264.63 21,582,016.63 (78,365,829.94)
Y4H1 83,262,281.25 44,205,304.99 39,056,976.26 (39,308,853.68)
Construction Y4H2 45,900,000.00 49,771,217.21 (3,871,217.21) (43,180,079.89)
Stage Y5H1 120,624,562.50 75,571,208.89 45,053,353.61 (1,873,282.72)
Y5H2 157,986,843.75 86,222,529.95 71,764,313.80 73,637,596.52
Y6H1 261,535,968.75 78,908,666.42 182,627,302.23 256,264,898.86
Y6H2 149,449,125.00 57,273,629.54 92,175,495.46 348,440,394.31
TOTAL 976,745,625.00 628,305,230.69 348,440,394.31 348,440,394.31

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Investment Appraisal Report
Title No. Geran 23908 Lot No. 228
QVM Consultancy Sdn. Bhd.

Cumulative GDV vs GDC

1,200,000,000.00

1,000,000,000.00

800,000,000.00

600,000,000.00

400,000,000.00

200,000,000.00

-
Y0 Y1H1 Y1H2 Y2H1 Y2H2 Y3H1 Y3H2 Y4H1 Y4H2 Y5H1 Y5H2 Y6H1 Y6H2
Cumulative GDV Cumulative GDC

Cumulative Before Tax Cash Flow

400,000,000.00

300,000,000.00

200,000,000.00

100,000,000.00

-
Y0 Y1H1 Y1H2 Y2H1 Y2H2 Y3H1 Y3H2 Y4H1 Y4H2 Y5H1 Y5H2 Y6H1 Y6H2

(100,000,000.00)

(200,000,000.00)

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Investment Appraisal Report
Title No. Geran 23908 Lot No. 228
QVM Consultancy Sdn. Bhd.

The lowest point of before tax cumulative cash flow occurred at second half of year two,
recorded at –RM158,997,506.44. This is the maximum amount of cash flow required to
fund for this project. Since we assume that full cost of land would be paid at the land
acquisition stage, it caused the land cost accounted to 80% of this amount. Therefore
we would advise to take term loan for purchasing of land, or joint venture with the land
owner to decrease the capital required.

Before Tax Cash Deduct Tax @ After Tax Cash

Flow 24% Flow
Y0 (116,880,000.00) (116,880,000.00)
Y1H1 (8,835,905.44) (2,120,617.30) (6,715,288.13)
Y1H2 (9,081,991.12) (2,179,677.87) (6,902,313.25)
Y2H1 (5,383,536.74) (1,292,048.82) (4,091,487.92)
Y2H2 18,816,073.15 (4,515,857.56) (14,300,215.59)
Y3H1 59,049,659.88 14,171,918.37 44,877,741.51
Y3H2 21,582,016.63 5,179,683.99 16,402,332.63
Y4H1 39,056,976.26 9,373,674.30 29,683,301.96
Y4H2 (3,871,217.21) (929,092.13) (2,942,125.08)
Y5H1 45,053,353.61 10,812,804.87 34,240,548.74
Y5H2 71,764,313.80 17,223,435.31 54,540,878.49
Y6H1 182,627,302.23 43,830,552.56 138,796,749.77
Y6H2 92,175,495.46 22,122,118.91 70,053,376.55
TOTAL 348,440,394.31 111,676,894.64 236,763,499.68

Before Tax After Tax

Net Cash Flow 348,440,394.31 236,763,499.68
Net Present Value 226,561,463.16 144,135,512.00
@6% discount

The total profit after tax is RM236,763,499.68. When discounted for 6% per annum,
NPV will be RM144,135,512.00.

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Investment Appraisal Report
Title No. Geran 23908 Lot No. 228
QVM Consultancy Sdn. Bhd.

Chapter 3 : Option 2 – Sell the Land

Another option would be to sell the land directly to another developer. We refer to
Valuation Report Basis 1-As Is Basis, cost of land is RM116,880,000.00. Refer to
Valuation Report Basis 2-Assumption Basis, the value of land for Highest And Best Use
development could be RM180,890,000.00.

In this section, we estimate the cost and profit of selling the land directly based on
several assumptions:-

1. The land is sold within one year

2. All legal costs and miscellaneous costs of acquire the land are neglected
3. Assume no bank loans or other financial means involved to acquire the land
4. Cost of holding the land or any sorts of maintenance are neglected

The cashflow of this option is summarized as per table below.

Y0 Y1 Total
Expenses (116,880,000.00) (116,880,000.00)
Income 180,890,000.00 180,890,000.00
Before Tax Cash Flow (116,880,000.00) 180,890,000.00 64,010,000.00
RPGT @ 30% of profit (19,203,000.00) (19,203,000.00)
After Tax Cash Flow (116,880,000.00) 161,687,000.00 44,807,000.00

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Investment Appraisal Report
Title No. Geran 23908 Lot No. 228
QVM Consultancy Sdn. Bhd.

Chapter 4 : Comparison for Proceed Development vs Sell the Land

Option 1 - Develop Option 2 – Sell

Return Of Investment 55.46% 54.77%

Before Tax Profit 348,440,394.31 64,010,000.00

Before Tax NPV @6% discount 226,561,463.16 53,770,943.40
Before Tax IRR 28.72% 54.77%

After Tax Profit 236,763,499.68 44,807,000.00

After Tax NPV @ 6% discount 144,135,512.00 35,654,905.66
After Tax IRR 23% 38.34%

Maximum Capital Required 158,997,506.44 116,880,000.00

Payback Period 4.98 years 1 year

Accounting Rate of Return (ARR) 50% N/A

Profitability Index 1.94 0.46

Recommended Option Option 1 Option2

The returns of investment of these two options are very similar, at 55.46% and 54.77%
respectively. Compared to other land development projects or investments, this ROI is
considered very high, both options are equally feasible.

The before tax and after tax IRR of selling the land is higher than developing the land,
however, if we looking at NPV, NPV of developing the land can reach around five times
higher compared to selling option. The capital of developing the land is 42 million (or
36%) higher compared to selling the land. Considering developing the land could yield
five times more profit with 36% more capital, developing the land could be more feasible.

In term of payback period, developing the land require 4.98 years to reach breakeven
point, while selling the land is one off transaction, where the profit could be obtained

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Investment Appraisal Report
Title No. Geran 23908 Lot No. 228
QVM Consultancy Sdn. Bhd.

after obtaining suitable buyer and going through all legal procedures to transfer the land,
expected to be able to sell off the land and obtain profit within one year of time.

Accounting Rate of Return for selling option cannot be referred because it is a one-off
transaction only. In term of profitability index, the option to develop the land has scored
much higher than sell the land, this means developing the land is more cost effective
investment.

In conclusion, we would recommend that developing the land as better option because
its profitability outperformed the option to sell the land. However, the drawbacks would
be higher capital will be required, and longer time of payback period.

Chapter 5 : Conclusion

In conclusion, regardless the land will be developed, or directly sell to other developer, a
great yield of profit could be obtained. However, the business strategy and financial
strength of the Zouk Property Development Sdn. Bhd. could affect the choice, whether
to develop the land or sell the land immediately. If the company has strong cashflow, we
would recommend to proceed developing the land to obtain highest profit from the land.
However, if the company wishes to dispose the land as soon as possible with lower
investment required, then selling the land to another developer would be the better
option.

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 Land Acquisition Pre-Development Stage Construction Stage
Projected Sales Total (RM) Y0 Y1H1 Y1H2 Y2H1 Y2H2 Y3H1 Y3H2 Y4H1 Y4H2 Y5H1 Y5H2 Y6H1 Y6H2
10% 10% 20% 20% 20% 20%
Mall 229,500,000.00 22,950,000.00 22,950,000.00 45,900,000.00 45,900,000.00 45,900,000.00 45,900,000.00
10% 5% 5% 10% 15% 35% 20%
SOHO Type 1 151,200,000.00 15,120,000.00 7,560,000.00 7,560,000.00 15,120,000.00 22,680,000.00 52,920,000.00 30,240,000.00
10% 5% 5% 10% 15% 35% 20%
SOHO Type 2 240,825,000.00 24,082,500.00 12,041,250.00 12,041,250.00 24,082,500.00 36,123,750.00 84,288,750.00 48,165,000.00
10% 5% 5% 10% 15% 35% 20%
Service Apartment Type 1 172,800,000.00 17,280,000.00 8,640,000.00 8,640,000.00 17,280,000.00 25,920,000.00 60,480,000.00 34,560,000.00
10% 5% 5% 10% 15% 35% 20%
Service Apartment Type 2 193,800,000.00 19,380,000.00 9,690,000.00 9,690,000.00 19,380,000.00 29,070,000.00 67,830,000.00 38,760,000.00
988,125,000.00 98,812,500.00 60,881,250.00 83,831,250.00 45,900,000.00 121,762,500.00 159,693,750.00 265,518,750.00 151,725,000.00
Less 5% Bumi Discount on 30% Quota (Excluding Mall) (11,379,375.00) (1,137,937.50) (568,968.75) (568,968.75) - (1,137,937.50) (1,706,906.25) (3,982,781.25) (2,275,875.00)
GROSS DEVELOPMENT VALUE 976,745,625.00 97,674,562.50 60,312,281.25 83,262,281.25 45,900,000.00 120,624,562.50 157,986,843.75 261,535,968.75 149,449,125.00

Land Acquisition Pre-Development Stage Construction Stage

Projected Cost Breakdown Total (RM) Y0 Y1H1 Y1H2 Y2H1 Y2H2 Y3H1 Y3H2 Y4H1 Y4H2 Y5H1 Y5H2 Y6H1 Y6H2

Construction Cost
Preliminaries 30,571,373.26 6,114,274.65 3,821,421.66 3,821,421.66 3,821,421.66 3,821,421.66 3,821,421.66 3,821,421.66 1,528,568.66

Piling & Foundation 30,571,373.26 21,399,961.28 9,171,411.98

Building Cost
20.00% 20.00% 20.00% 20.00% 20.00%
-Mall (4 Level) 61,714,560.00 12,342,912.00 12,342,912.00 12,342,912.00 12,342,912.00 12,342,912.00
30.00% 30.00% 10.00% 15.00% 10.00% 5.00%
-Car Park (4 Level) 44,434,483.20 - 13,330,344.96 13,330,344.96 4,443,448.32 6,665,172.48 4,443,448.32 2,221,724.16
60.00% 25.00% 10.00% 5.00%
-Facility Floor (1 Level) 7,680,000.00 - - - 4,608,000.00 1,920,000.00 768,000.00 384,000.00
20.00% 25.00% 35.00% 20.00%
-SOHO (20 Level) 68,341,942.85 - - - 13,668,388.57 17,085,485.71 23,919,680.00 13,668,388.57
20.00% 25.00% 35.00% 20.00%
-Service Apartment (20 Level) 62,400,000.00 - - - 12,480,000.00 15,600,000.00 21,840,000.00 12,480,000.00
5.00% 8.00% 15.00% 20.00% 25.00% 20.00% 7.00%
M&E Works 76,428,433.14 3,821,421.66 6,114,274.65 11,464,264.97 15,285,686.63 19,107,108.29 15,285,686.63 5,349,990.32
20.00% 20.00% 20.00% 20.00% 20.00%
Ancillary Building Cost 1,000,000.00 200,000.00 200,000.00 200,000.00 200,000.00 200,000.00
10.00% 15.00% 15.00% 20.00% 15.00% 10.00% 10.00% 5.00%
Infrastructure Works 4,318,438.10 431,843.81 647,765.72 647,765.72 863,687.62 647,765.72 431,843.81 431,843.81 215,921.91
5.00% 20.00% 10.00% 65.00%
Provisional Costs 6,500,000.00 325,000.00 1,300,000.00 650,000.00 4,225,000.00
Contingency Sum @ 5% of construction cost 19,373,030.19 2,421,628.77 2,421,628.77 2,421,628.77 2,421,628.77 2,421,628.77 2,421,628.77 2,421,628.77 2,421,628.77

TOTAL CONSTRUCTION COST 413,333,634.00 - - - - 30,367,708.51 32,426,561.78 38,878,347.76 44,444,259.98 70,244,251.67 80,895,572.72 73,581,709.19 42,495,222.39

Professional Fees
10.00% 10.00% 10.00% 10.00% 7.14% 7.14% 7.14% 7.14% 7.14% 7.14% 7.14% 10.00%
Architect 1,446,667.72 1,446,667.72 1,446,667.72 1,446,667.72 1,033,334.09 1,033,334.09 1,033,334.09 1,033,334.09 1,033,334.09 1,033,334.09 1,033,334.09 1,446,667.72
10.00% 10.00% 10.00% 10.00% 7.14% 7.14% 7.14% 7.14% 7.14% 7.14% 7.14% 10.00%
C&S Engineer 413,333.63 413,333.63 413,333.63 413,333.63 295,238.31 295,238.31 295,238.31 295,238.31 295,238.31 295,238.31 295,238.31 413,333.63
10.00% 10.00% 10.00% 10.00% 7.14% 7.14% 7.14% 7.14% 7.14% 7.14% 7.14% 10.00%
M&E Engineer 330,666.91 330,666.91 330,666.91 330,666.91 236,190.65 236,190.65 236,190.65 236,190.65 236,190.65 236,190.65 236,190.65 330,666.91
25.00% 25.00% 25.00% 25.00%
Town Planner 6,389.00 6,389.00 6,389.00 6,389.00 - - - - - - - -
2.50% 2.50% 2.50% 52.50% 4.29% 4.29% 4.29% 4.29% 4.29% 4.29% 4.29% 10.00%
QS 82,666.73 82,666.73 82,666.73 1,736,001.26 141,714.39 141,714.39 141,714.39 141,714.39 141,714.39 141,714.39 141,714.39 330,666.91
12.50% 12.50% 12.50% 12.50% 12.50% 12.50% 12.50% 12.50%
Project Management - - - - 1,033,334.09 1,033,334.09 1,033,334.09 1,033,334.09 1,033,334.09 1,033,334.09 1,033,334.09 1,033,334.09
25.00% 25.00% 25.00% 25.00%
MISC 516,667.04 516,667.04 516,667.04 516,667.04 - - - - - - - -
35,572,248.52
Statutory Contribution Fees
TNB 621,000.00
JPS 976,745.62 1,465,118.44
IWK 3,906,982.50 5,860,473.75
ISF 690,000.00
Planning Submission Fees 345,000.00
Title Fees 690,000.00
14,555,320.31
5.00% 35.00% 20.00% 10.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Sales & Marketting 19,534,912.50 976,745.63 6,837,219.38 3,906,982.50 1,953,491.25 976,745.63 976,745.63 976,745.63 976,745.63 976,745.63 976,745.63

Conversion Premium
Development Charges on Plot Ratio Changes 4,429,114.32 4,429,114.32
Legal Fee & Stamp duty 4,675,200.00
Quit Rent & Assessment 278,439.50 278,439.50 278,439.50 278,439.50 278,439.50 278,439.50 278,439.50 278,439.50 278,439.50 278,439.50 278,439.50 278,439.50
8,016,474.00

Financing Cost
60% of Land Cost & 26% of Construction Cost at 9% interest 15,983,527.04 1,331,960.59 1,331,960.59 1,331,960.59 1,331,960.59 1,331,960.59 1,331,960.59 1,331,960.59 1,331,960.59 1,331,960.59 1,331,960.59 1,331,960.59 1,331,960.59

Land Cost 116,880,000.00 116,880,000.00

GROSS DEVELOPMENT COST 628,305,230.69 116,880,000.00 8,835,906.26 9,081,991.94 5,383,537.62 18,816,074.82 38,624,903.20 38,730,265.12 44,205,305.42 49,771,217.64 75,571,209.33 86,222,530.38 78,908,666.85 57,273,630.12

Summary Total (RM) Y0 Y1H1 Y1H2 Y2H1 Y2H2 Y3H1 Y3H2 Y4H1 Y4H2 Y5H1 Y5H2 Y6H1 Y6H2
Project GDV 976,745,625.00 - - - - 97,674,562.50 60,312,281.25 83,262,281.25 45,900,000.00 120,624,562.50 157,986,843.75 261,535,968.75 149,449,125.00
Project GDC 628,305,238.69 116,880,000.00 8,835,906.26 9,081,991.94 5,383,537.62 18,816,074.82 38,624,903.20 38,730,265.12 44,205,305.42 49,771,217.64 75,571,209.33 86,222,530.38 78,908,666.85 57,273,630.12
Cash Flow 348,440,386.31 (116,880,000.00) (8,835,906.26) (9,081,991.94) (5,383,537.62) (18,816,074.82) 59,049,659.30 21,582,016.13 39,056,975.83 (3,871,217.64) 45,053,353.17 71,764,313.37 182,627,301.90 92,175,494.88
Less Income Tax @ 24% 111,676,892.72 (2,120,617.50) (2,179,678.07) (1,292,049.03) (4,515,857.96) 14,171,918.23 5,179,683.87 9,373,674.20 (929,092.23) 10,812,804.76 17,223,435.21 43,830,552.46 22,122,118.77
After Tax Cash Flow 236,763,493.60 (116,880,000.00) (6,715,288.76) (6,902,313.87) (4,091,488.59) (14,300,216.87) 44,877,741.07 16,402,332.26 29,683,301.63 (2,942,125.41) 34,240,548.41 54,540,878.16 138,796,749.45 70,053,376.11

Cumulative GDV 976,745,625.00 - - - - - 97,674,562.50 157,986,843.75 241,249,125.00 287,149,125.00 407,773,687.50 565,760,531.25 827,296,500.00 976,745,625.00
Cumulative GDC 628,305,238.69 116,880,000.00 125,715,906.26 134,797,898.20 140,181,435.82 158,997,510.64 197,622,413.84 236,352,678.96 280,557,984.37 330,329,202.02 405,900,411.34 492,122,941.72 571,031,608.57 628,305,238.69
Cumulative Before Tax Cash Flow 348,440,386.31 (116,880,000.00) (125,715,906.26) (134,797,898.20) (140,181,435.82) (158,997,510.64) (99,947,851.34) (78,365,835.21) (39,308,859.37) (43,180,077.02) 1,873,276.16 73,637,589.53 256,264,891.43 348,440,386.31
Cumulative After Tax Cash Flow 236,763,493.60 (116,880,000.00) (123,595,288.76) (130,497,602.63) (134,589,091.22) (148,889,308.09) (104,011,567.02) (87,609,234.76) (57,925,933.12) (60,868,058.53) (26,627,510.12) 27,913,368.04 166,710,117.49 236,763,493.60

Discounted Cash Flow at 6% 226,561,456.33 (116,880,000.00) (8,578,549.77) (8,560,648.45) (4,926,699.55) (16,717,838.77) 50,936,754.83 18,074,598.74 31,756,895.51 (3,055,974.95) 34,529,643.72 53,399,388.89 131,933,848.58 64,650,037.56
Discounted After Tax Cash Flow 144,135,506.81 (116,880,000.00) (6,519,697.82) (6,506,092.82) (3,744,291.66) (12,705,557.47) 38,711,933.67 13,736,695.04 24,135,240.59 (2,322,540.97) 26,242,529.23 40,583,535.55 100,269,724.92 49,134,028.54