Wednesday, September 28, 2011

SP Setia: Overweight: Takeover Offer From PNB

September 29, 2011
Price Target: RM4.12
Share price: RM3.50

# PNB and parties acting in concert (PACs) have made a conditional offer of RM3.90 per share (11.43% premium) and 91 sen per warrant (97.83% premium) for property developer SP Setia.

# As of Sept 27, they have a combined 33.17% stake in SP Setia (Skim ASB: 20.75%, PNB: 8.05% and Amanah Saham Wawasan 2020: 2.02%).

# The offeror intends to maintain the listing status of the company, while still maintaining more than 50% stake in SP Setia.

# The board of directors (BOD) has issued a statement that it feels the offer price undervalues the company, and that they would be seeking a competing offer, and will be writing to the Offeror to enquire whether they would be willing to improve on their offer price.

Financial impact

Pros / Cons
# Near-term positive, given that there is a good chance of a better offer price materialising, which in turn may drum up M&A excitement.

# We agree with the BOD that the offer price of RM3.90 significantly undervalues the company as it is at 15% discount to our RNAV estimate of RM4.58, and appears unattractive vs. the street’s target price range of RM4.12 to RM5.41

# Long-term investors who believe in the intrinsic value of the company should not accept the offer despite the premium to current share price. Investors who have
not sold out of SP Setia amidst all the external fears should stick to their conviction.

Sales slowdown; cost escalation; delays in launches.

No changes, due to lack of clarity on key details such as exact product mix or project margins.

Rating - Upgrade to Trading Buy
Now trading at 24% discount to RNAV; highly liquid proxy to property sector, strong product concepts and pipeline; consistent dividends.

High level of foreign shareholding ~20%) and liquidity means there could be more volatility in the near-term before the share price stabilises. Still trades at highest P/E multiple in the sector (19x FY11E P/E).

The M&A angle will add near-term excitement to the share price, and we now upgrade SP Setia to a Trading Buy.

Source: HLIB Research

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