KUALA LUMPUR (Jan 8): TA Securities has downgraded S P Setia Bhd to "hold", with a lower target price of RM1.05 (from RM1.07) based on calendar year 2024 (CY2024) price-to-book multiple of 0.35 times, as it expects only a total return of 11% following the recent 28% price rally.

In a note on Monday, the research house said S P Setia's conditional sale and purchase agreement (SPA) to sell 960 acres (388.5ha) of land in Tebrau, Johor, to Scientex Lestari Sdn Bhd was terminated due to non-fulfilment of the condition precedent relating to the approval of the Economic Planning Unit.

This marks the second time the deal has fallen through, after Scientex re-entered the SPA with S P Setia in July 2023 to acquire the land for RM547.7 million and formed a joint venture with Datuk Azman Mahmud to fulfil the Bumiputera equity condition.

“Following this, we have revised down S P Setia’s financial year 2024 (FY2024) earnings forecast by 52% due to the exclusion of the land sales contribution, while raising our FY2025 earnings forecast by 4.3%,” TA Securities said.

Despite the disappointment, the research house believes the group can still improve its net gearing, driven by repatriating funds from overseas projects, recognising land sales proceeds totalling RM733 million from the disposal of 960 acres of land in Bandar Kinrara, Selangor, and clearing unsold inventory.

“With a positive outlook for the Johor property market, anticipating increased demand driven by the region’s improved investment climate and economic opportunities, we remain optimistic that S P Setia could secure a better price for the land if disposal opportunities emerge once more,” TA Securities added.

The research house also said management can still achieve its sales target of RM4.2 billion for FY2023, despite the exclusion of the Tebrau land sales, as it has achieved property sales of RM3.33 billion in the first nine months of 2023, secured a RM229 million land sale to KSL Holdings Bhd on Nov 23, and has RM450 million in bookings to be converted to sales.

At the time of writing on Monday, S P Setia shares traded two sen or 2.15% higher at 95 sen, valuing the group at RM4.14 billion.