News

• SP Setia won a tender for the purchase of 1,675 acres freehold lands in Seberang Perai Utara for RM620m.

• The land is strategically located within the Butterworth Sungai Petani Growth Corridor surrounded by existing townships, retail malls, medical institute, a university campus as well as a golf course. The Land is approximately 18km away from Butterworth and 32km away from the Penang Bridge.

• The land is planned for eco-themed mixed development township with estimated GDV of RM9.6bn over 15 to 20 years of development period.

Financial Impact

• The acquisition price is translated to RM8.50 psf or 6.5% of total GDV, which we deem attractive.

• Net gearing is expected to increase from 0.17x to 0.26x, which is still manageable.

• We expect the project to increase our RNAV estimation by 9% with assumption of 30% EBIT margin.

Pros/Cons

• We are positive on the deal given the attractive low land cost as % of GDV and its maiden presence in mainland of Penang.

• With this acquisition, we expect total remaining GDV for the company to increase by 16% to RM71.5bn.

• SP Setia maintains its sales target at RM3.5bn on the back of RM4.2bn worth of launches. Major launches for 2H16 comprise of high rise projects such as ViiA Residence (GDV: RM407m), Setia Sky Seputeh (GDV: RM458m), Trio by Setia (GDV: RM220m) and Setia Sky Ville (GDV: RM453m). We are cautious on these high rise projects given the high entry price amidst softer property market.

Forecasts

• Unchanged.

Rating

HOLD ↔

• It is currently trading at close to average P/RNAV band with consistent dividend yield of 4%. Potential upside from further landbanking activities and potential M&A opportunities.

Valuation

• Maintain HOLD with TP unchanged at RM3.11 based on unchanged discount to RNAV of 35%

Source: Hong Leong Investment Bank Research - 10 Nov 2016