News   Entered into agreement with Cash Band (M) Bhd (CBB) as a JV partner to develop 194.65ac (gross) leasehold land in District of Gombak. The landowner, CBB, is entitled to 16% of gross sales value or minimum of RM200m. CBB is 99.98% owned by Kumpulan Perangsang Selangor Bhd. 

 The land is currently golf club near Templar Park and is only 20km away from KL city. (Refer overleaf for details).

Comments   This came as a surprise and is slightly positive since c.50% of land cost is paid progressively over the 6-year development period; the first RM100m is only due upon CBB meeting the CPs (12 months period). Current net gearing of 0.6x is at the limits of our comfort level while the group requires capital to kick-start catalytic projects like Battersea. So, progressive land payments are handy since SPSETIA has yet to complete its 15% placement exercise (up to RM1b); post placement, net gearing will be lowered to 0.4x. 

 Guided GDV of RM1.24b over 6 years based on plans for an "eco-themed" development (e.g. Eco Park, Pearl Island). Planning is still at a preliminary stage but we gather terraces could be priced >RM500,000/unit onwards.  

 Land cost is considered 'fair' since it is 16% of the guided GDV; this would imply mid-teens development margins. 

 Impact to our FD RNAV is <1% in the backdrop of c. RM104b (before accounting for stakes). 

Outlook   The group has up till Apr-13 to complete their 15% placement. 

Change to Forecasts   No changes to FY13-14E earnings as earliest significant contributions are likelier in FY15E onwards. 

Rating    Maintain MARKET PERFORM

 Although SPSETIA has set itself apart from other developers via its high-growth sales arising from its overseas projects, it appears SPSETIA liquidity issues are affecting its share price negatively. However, downside risk is limited at the 6-year trough of 1.4x FY13E PBV (-1.0SD).

Valuation    Maintain TP of RM3.30 based on 40%* discount on our FD SoP RNAV of RM5.46.

Risks   Sector risks and liquidity issues. 

Source: Kenanga