News

Over the weekend, The Edge Weekly reported that PNB is considering injecting the assets of I&P Group into SPSB to unlock value. The alternative course of action would be to list the I&P Group directly.

Sources believe that PNB would prefer to use the asset injection route given that SPSB is already an established property developer. Financial impact

Uncertain at this juncture as the financial impact would be subject to valuation of the I&P assets being injected into SP Setia as well as mode of payment and valuation of SP Setia if it involves issuance of new shares.

Pros / cons

We opine that given the right structure and asset valuations, this would be long term positive for SPSB, as I&P has 2,000 ha of development land in Greater KL and Johor which is estimated to be sustainable over the next 15 to 20 years and fetch RM25bn GDV.

This would be on top of the RM40bn balance GDV that SPSB already has, which will greatly enhance its long term earnings base.

Risks

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

Forecasts

Maintained. While we be believe this is a long term positive catalyst, earnings impact is uncertain at this point in time.

Rating

HOLD

• Positives: Strong product concepts and pipeline; consistent dividends.
• Negatives: No longer the most liquid property stock in Malaysia.

Valuation

Should the asset injection of I&P’s land bank indeed transpire, our RM4.47 RNAV per share estimate could enjoy a substantial boost (provided assets are injected at reasonable valuations which provide upside potential). However, given the lack of details, we maintain our RNAV estimate pending more clarity on the situation.

While its operations remain on-track, we believe concerns over management stability following Tan Sri Liew’s departure will linger and weigh on share price.

Maintain TP at RM3.35 (maintain 25% discount to FD RNAV), due to lack of fresh rerating catalyst as well as limited upside with the current negative sentiment surrounding the property sector. Maintain HOLD

Source: Hong Leong Investment Bank Research - 23 Sep 2013