Journey to Wealth
SP Setia - Challenging maiden venture into China HOLD
- It was announced yesterday that S P Setia and RimbunanHijau ' via Quinzhou DevelopmentConsortium ' has entered into a joint-venture framework agreement (JVA) withQuinzhou Jingu Investment to establish a JVCo for the development of the Qinzhou Industrial Park (QIP).
- The JVA basically provides a framework for the developmentof the China-Malaysia QIP on a land measuring approximately 55 sq km (or 13,591acres) in total, located next to the Guangxi Qinzhou Bonded Port Area.
- The QIP will comprise five functional districts, namelyindustrial, residential, supporting facilities service, port new city productioncentral, life central, and scientific and technology research service.
- A JVCo with a capital of RMB1.8bil (or RM878mil) ' China Malaysia Qinzhou Industrial ParkInvestment Co ltd ' will be established,which will see Qinzhou Jingu and Qinzhou Malaysia having a 51% and 49% stake,respectively.
- Meanwhile, SP Setia and Rimbunan Hijau will have a 45%stake each in Qinzhou Malaysia, while the remaining 10% will be shared equallybetween Malaysian businessmen. This means SP Setia will have a 22.1% effectivestake in the development, for which it will commit an initial capital ofRM194mil.
- The industrial park is located some 2 hours' drive fromNanning, capital city of Guangxi or 10km south of Qinzhou City and 5km north ofthe Guangxi Qinzhou Free Trade Port Area ('Qinzhou Port') ' a national economicand technological development zone. It is also strategically located betweenthe port cities of Beihai to the east and Fangchenggang City to the west. The latteris a major regional shipping and trade hub between Guangxi and Vietnam.
- We understand the immediate development focus of the QIPis within the start-up district, which spans over 1,945 acres, although the GDVof this portion is not known at this juncture. S P Setia expects the maidendevelopment to start in 4Q2012 as the investment certificate would be issued in3 to 4 months' time.
- We do not believe the market will re-rate the stock due tothis news until material earnings contributions start to kick in, which wethink will be in the long term. However, on the plus side, given it is a G2Ginitiative, it would enable SP Setia to secure development approvals withoutmuch hassle, unlike its previous China development in Xiaoshan, Hangzhou.
- We are keeping our earnings estimates at this juncture,given that it is beyond our forecast horizon and details are rather sketchy at this juncture as theparties are still doing the feasibility studies. We maintain our HOLD rating.
Source: AmeSecurities
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