Investment Highlights

• We maintain HOLD on S P Setia (Setia) with an unchanged fair value (FV) of RM0.60/share given the negligible impact of excluding part of the contribution from Glengowrie project from our RNAV calculations following the partial disposal of the land in Semenyih, Mukim Beranang, Daerah Ulu Langat, Selangor. Our FV is based on a 60% discount to revised RNAV and a neutral ESG rating of 3 stars (Exhibits 4 & 5).

• Our FV also implies an FY24F PE of 9x, 1 standard deviation below its 3-year median.

• Setia’s wholly owned Petaling Garden entered into 3 inter-conditional sale and purchase agreements with Mah Sing to dispose several parcels of freehold land totaling 500 acres situated in Semenyih, Mukim Beranang, Daerah Ulu Langat, Selangor for RM392mil (Exhibit 1).

• As at 31 March 2023, the land, under the project name of Glengowrie, carried a gross development value (GDV) of RM2.9bil, which represented merely 2% of Setia’s remaining GDV (Exhibit 3). Hence, the disposal will have minimal impact on our valuation.

• We have not factored in earnings contribution of the lands into our revenue forecast given the uncertainty on the timing of launches. Nevertheless, we raised our FY24F/FY25F core net profit (CNP) by 3% to factor in lower interest expense with the group’s borrowings expected to be reduced from the disposal proceeds of the land.

• The one-off gain on the land disposal is estimated to be RM31mil.

• The land disposal is expected to be completed by 2QFY24. The proceeds from the disposal will be utilised for debt reduction as well as investment in strategic project developments.

• Upon the completion of the disposal, we expect the group’s cash position to increase by 13%, subsequently leading to an improvement of net gearing ratio to 0.54x from 0.57x.

• We deemed that the disposal price of RM18 psf for the land to be reasonable given that the asking price for surrounding lands ranges from RM15 psf to RM35 psf (Exhibit 2).

• We positively view the disposal, which is in line with Setia’s plan to pare down its high-level debt by monetising undeveloped land banks. It is also aligned to its long-term plan to move towards an asset-light structure.

• The proposed disposal will subject to the approval of the Estate Land Board, Economic Planning Unit and loan consent of RHB Islamic Bank.

• The stock currently trades at a fair FY24F PE of 8x, at parity to its 3-year average.

Source: AmInvest Research - 20 Jun 2023