News   The Secretary of State for Foreign and Commonwealth Affairs of the United Kingdom of Great Britain and Northern Ireland has accepted SPSETIA's tender purchase of 3.08ac freehold land along Jalan Ampang (i.e. Embassy Row) for RM295.0m (RM2,200psf). The land is currently occupied by The British High Commission (refer overleaf). 

 

Comments   Project GDV of RM1.04b which will feature an integrated commercial development; but more details will be provided later when approvals (e.g. D.O.) are obtained. We believe the area can fetch decent plot ratios of 6x and project pretax margins of c. 20%.

 Land price of RM2,200psf is considered fair. Over the last few years, prime niche landbank around KLCC (1-2km radius) with main road frontage has been transacted between RM2,000-2,400psf. The land will likely be financed by 70:30 debt-equity financing, which would increase current net gearing from 0.33x to 0.40x; although still within comfort zone, the group is in the midst of its 15% placement exercise to kick-start catalytic projects like Battersea.  

 Overall, Neutral on the acquisition as the project's earnings contributions will not be immediate since launch is likelier in 2 years time while impact to RNAV is minimal as it only increases our FD SoP RNAV by 2 sen to RM5.44.  

 

Outlook  The group has up till Apr-13 to complete their 15% placement. We can also look forward to the Battersea Phase 1 project launch in Apr-13. 

 

Forecast  No changes to FY12-13E net profit, as project contributions will only be material in FY14 onwards. 

 

Rating   Maintain MARKET PERFORM

 Although there are catalytic projects at hand, it appears SPSETIA liquidity issues are affecting its share price negatively. However, downside risk is limited at the 6-year trough of 1.3x FY13E PBV (-1.5SD).

 

Valuation   Maintain TP of RM3.30 based on 39%* discount on our FD SoP RNAV of RM5.44. 

 

Risks  Sector risks and liquidity issues. Delays in the placement may affect project timelines.

Source: Kenanga