News

• SP Setia was served by Inland Revenue Board of Malaysia (MIRB) with Notices of Additional Assessment for an additional income tax of RM22.4m and a penalty of RM10.1m, totalling RM32.5m.

Financial Impact

• The quantum of retrospective tax claim is about 5% of our FY18 earnings forecast of RM645m.

• However, we do not take into account the potential negative impact as it is considered non-recurring in nature as well as on the notion that SP Setia is ready to challenge both the Notices and penalty.

Highlights

• The abovementioned additional income tax and penalty were imposed due to the disallowance of both interest and common expenses being treated as deductible expenses in the years of assessment from 2009 to 2015.

• However, SP Setia is of the view that there are reasonable grounds to challenge the basis and validity of the disputed Notices.

• Note that this is the second retrospective tax claims within months. Recall that SP Setia was also hit by RM75m of additional income tax and penalty pertaining to the interpretation of Real Property Gains Tax Act 1976 back in Nov 17.

Forecasts

• Unchanged.

Rating

BUY ↔

• We believe the completion of RNAV accretive acquisition of I&P Group will provide the earnings cushion in FY18 and the synergistic to Setia as a whole in its bid to become the largest pure property player in the market. Consistent high dividend yield is another positive point.

Valuation

• Maintain BUY with unchanged TP of RM4.08 based on 35% discount to RNAV of RM6.27.

Source: Hong Leong Investment Bank Research - 29 Mar 2018