News  It was announced that the following will be resigning from their positions in SPSETIA; (i) Tan Sri Liew Kee Sin (President & CEO) by 20-Apr-14, (ii) Dato’ Teow Leong Seng (CFO) by 31-Jul-14, (iii) Tan Sri Lee Lam Thye (Non-Independent, Non-Executive Director) effective immediately. Tan Sri Lee will remain as Chairman of SPSETIA Foundation as long as his services are required. The Board has appointed Dato’ Voon Tin Yow (currently COO) to be the Acting President and CEO and Dato’ Khor Chap Jen (presently Executive VP) to be the Acting Deputy President for a period of 1 year (1-May-14 to 30-Apr-2015. Both Dato’ Voon and Dato’ Khor have been with the company since 1996.

Comments  The timeline of resignation is within expectations as the market expects that Tan Sri Liew will leave close to the expiry date of his last put option (19-Mar-14). At this juncture, Tan Sri Liew has 2.76% remaining stake, which we believe he will sell, while PNB owns 66.41% in SPSETIA.

 While the appointment of Dato’ Voon as Acting President and CEO has been announced during the succession plan, the resignation of Dato’ Teow and thus the appointment of Dato’ Khor as the second in command, was a surprise. Recall, there was a management succession plan put in place back in Mar-13, where Dato’ Voon and Dato’ Teow would be part of the management succession plan. The surprising departure of Dato’ Teow may result in further uncertainties in the stock.

 While we are saddened by the widely expected departure of Tan Sri Liew and key management personnel, we believe that SPSETIA is a well-oiled and professionally driven property developer. However, investor sentiment may be affected.

Outlook  We still have no management guidance for FY14E sales target. The group does believe that the affordable segment will remain strong and will skew towards that. However, we believe it will be tough to outperform the high-base effect of FY13 sales and expect FY14E sales of RM6.1b (-26% YoY).

Forecast  No changes to estimates.

Rating Maintain MARKET PERFORM

Valuation  Lower TP to RM3.03 (from RM3.25) based a wider 45% discount to its FD RNAV of RM5.46. We widen our FD discount factor from 40% to 45% to its historical high levels to take into account the reality of Tan Sri Liew’s departure and unexpected resignation of Dato’ Teow. While the stock has bottomed given that it is trading at - 2.0SD in terms of its Fwd PBV (1.1x) and Fwd PER (15.9x), we believe investors sentiment will be affected while the stock lacks catalysts because (i) FY14E sales is likely to be lower than FY13 and (ii) landbank acquisition direction maybe quieter which means less news flow.

Risks to Our Call Sector risks. Changes in management/leadership.

Source: Kenanga