News

• SP Setia had successfully tendered a 4.6 acres leasehold land along Toh Tuck Road, Singapore for a purchase consideration of SGD265.0m (~RM847.6m) from the Urban Redevelopment Authority (URA) of Singapore.

• The purchase is expected to be funded via a combination of bank borrowings and/or internal generated fund and deal is expected to be completed in 3Q17.

• The land has an allowable development of a 5 storey luxury condominium with 327 units. With a GDV of SGD457.0m (RM1.5bn), official launch is expected in 2018 and will take 5 years to complete.

Financial Impact

• With plot ratio of 1.4x, the acquisition price translates to SGD944.7 psf of allowable GFA. Land cost constitutes 57% of estimated GDV, which is not unusual for a mature area in developed nation like Singapore.

• Based on the URA, the bidding price is 1.9% higher than that of its closest competitor, Singhaiyi Investments Pte Ltd.

• The GDV of RM1.5bn is expected to increase total effective remaining GDV for the group by 2% to RM77.9bn.

• Assuming an EBIT margin of 16%, NPV of the project is estimated at RM111.0m or about 3 sen per share (0.6% of our TP).

Pros/Cons

• We are positive on the land acquisition as it enables SP Setia to further extend its footprint in Singapore after having done well in the recent projects like 18 Woodsville and Eco Sanctuary.

• The proposed land is strategically located near the vicinity of Bukit Timah region with ease accessibility via the Pan Island Expressway (PIE), the Bukit Timah Expressway (BKE) and Ayer Rajah Expressway (AYE).

• Besides, Beauty World MRT station is about 650m away and there are 5 shopping malls (eg. Bukit Timah Shopping Centre, West Mall and etc) within 10-minute-drive.

• For FY17, SP Setia is targeting to launch RM5.4bn of new projects and have a sales target of RM4bn.

Forecasts

• We incorporate the forecast of this project, resulting in higher PAT of 1.5% for FY19.

Rating

BUY ↔ TP : RM4.00

• We believe investor’s sentiment towards SP Setia would improve as the proposed acquisition of I&P Group is expected to be RNAV accretive, synergistic in the long run and potentially become the largest pure property player in the market. Consistent dividend yield of 5% is another positive point.

Valuation

• Maintain BUY with TP increased to RM4.00 from RM3.97 based on unchanged 30% discount to a higher RNAV of RM5.71 (from RM5.67) after imputing this acquisition

Source: Hong Leong Investment Bank Research - 19 Apr 2017