Hot on the heels of the land disposal to Mah Sing Group Berhad (500 acres for RM392m in June), SP Setia announced that it is selling a 959.7-acre plot of land in Johor to Scientex Lestari Sdn Bhd (subsidiary of Scientex Berhad) for RM547.7m. Combined, the two deals are expected to monetize about RM940m to the Group. To recap, this latest deal is the same that was initially agreed back in May 2021 but then terminated due to non-fulfillment of a condition precedent. We understand that the condition precedent has now been satisfied, with the deal likely to proceed without any hiccups. Upon completion, the Group is expected to realize gains of approximately RM438.3m, which is estimated to increase its net assets and cash position by RM320.3m and RM441.4m respectively. We are positive with the Group’s commitment to bring down its debt load. To recap, the Group aims to lower it to 0.5x by end-FY23, which among others will be supported by sale of non-core assets such as land and investment properties (with estimated RM5bn total value). The deal is expected to be concluded in 2QCY24. All told, we keep our earnings estimates for now pending completion of the deal. Maintain Outperform and TP of RM0.95 pegged at c.60% discount to book value.

• Land disposal details. The said land is earmarked earlier to be developed as “Taman Pelangi Indah II” with estimated gross development value (GDV) of about RM8bn. To recap, SP Setia had announced the proposed disposal of the same land to Scientex Quatari back in May 2021 for RM518.15m but the agreement lapsed due to non-fulfilment of a condition precedent, specifically in relation to the approval from the Economic Planning Unit (EPU). The Group believes the condition precedent is now likely to have been satisfied, with the deal expected to complete by 2QCY24. Positively, the land deals announced demonstrates the value of the Group’s landbank that can even yield substantial gains such as this deal, while the stock is valued at almost 80% discount to its book value, which is unjustifiable in our view.

• Sale price at RM547.7m is about 6% higher than what was mooted in the earlier deal that was rescinded. More importantly, the terms of payment are also superior compared to earlier deal which only pays SP Setia in phases. The new deal dictates that most of the sale consideration will be settled seven months from the unconditional date (the date when the fulfilment of the last of the conditions precedent). The disposal is in line with SP Setia’s strategy to improve its capital efficiency by offloading non-core assets. Other assets that could be monetized include its investment assets that have estimated value of RM5bn.

Source: PublicInvest Research - 6 Jul 2023