Sunday, August 14, 2011

SP Setia: Overweight: Acquires Land In Beranang

August 15, 2011
Price Target: RM4.12
Share price: RM3.85


News
# SP Setia entered into an agreement with Ban Guan Hin Realty to acquire 1,010.5 acres of freehold land in Beranang, Daerah Ulu Langat, Negeri Selangor for RM330m, or RM7.50 psf. The land is situation between the towns of Semenyih, Bangi Old Town and Beranang, and is approximately 19km from the proposed Bandar Kajang MRT station on the Sungai Buloh-Kajang line.

# The acquisition is slated for completion by 1H FY12, and SP Setia intends to develop a mixed residential township with RM3.5bn of GDV.

Financial impact
# We do not expect any significant impact for FY11-13, as the group’s focus will be on key projects including KL Eco City, Setia Alam / Eco Park, Setia Sky Residences and Fulton Lane in Melbourne.

# We estimated a modest impact on net gearing (from 0.3x to 0.4x) arising from this land acquisition.

Pros / Cons
# We believe that the acquisition price of RM7.50 is fair, given that Sunway City’s cost for its land in Semenyih was RM5.46 psf (acquired in 1996).

# We believe Allows SP Setia to replicate its successful township concept in Setia Alam in the emerging Kajang market, and to position itself for the proposed MRT line over the longer term.

Risks
Slowdown in sales; escalation in construction and raw material costs; delays in launches.

Forecasts
# Due to lack of clarity on key details such as exact product mix, expected completion date or project margins, we make no change to our earnings forecast
or RNAV-based price target for SP Setia.

# Maintain 15-28% earnings growth for FY11-13, supported by RM3.46bn of unbilled sales (2.3x FY10 property revenue); uptick in sales from Setia Alam and Eco Park with the opening of Setia City Mall in May 2012; continued growth in sales from Johor townships.

Rating - Maintain Hold
Positives
highly liquid proxy to property sector, strong product concepts and pipeline; consistent dividends.

Negatives
Trading at only 16% discount to RNAV;(our top sector picks: UMLand trades at 67% discount to RNAV; KSL 46%).

Valuation
Trades at industry-leading 23.7x P/E with limited upside; maintain HOLD.



Source: HLIB Research

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