S P Setia Berhad

Parque Melbourne, St. Kilda Road, Melbourne CBD (GDV: RM0.8b) is mostly sold. It consists of 2 towers (11 and 19 storeys) and 1 speciality lot with 1, 2 and 3 bedroom offerings (332 units, 484-1442sf) priced between AUD375k-AUD3.4m/unit. Expected completion date is 4Q16. Out of the 332 units, we gather that only less than 3% of buyers are unable to secure loans. Developers like SETIA do actively check with their buyers on their ability to get loans six months before project completion. If the buyer is unable to secure financing, SETIA will commence on-selling which has been successful as there are a lot of demand for the project as it is next to the Wesley College Melbourne Campus and has a light-rail station (Moubray Street Stop 26) in front of the site. Fulton Lane (GDV: RM1.4b, price range: AUD333k-AUD1.4m/unit) was launched at end 2013 and has a 100% take-up rate and was completed in Mar 2015. For Fulton and Parque, local buyer content is around 55%-60%.

Maison Carnegie @ Neerim Road Melbourne (GDV: RM97m, 48 units of apartments) was launched in 3Q16. It is 11km South-East of Melbourne’s CBD and is easily accessible by tram services (200m from site), train station (500m from site) and local bus services. To date, the group has secured sales of RM48m, which is commendable given the tighter banking liquidity. There is growing popularity for suburban apartments as landed properties have now crossed the AUD1m/unit market and hence, more affordable options are required. Note that most of the buyers for Carnegie are locals.

Telstra site, along Exhibition Street, Melbourne CBD (GDV: RM2.1b). The group is still at the design planning stage and we gather it will likely be a 5-star hotel while the operator has not been announced yet. Notably, Melbourne’s luxury hotels have a very high occupancy rate of c. 90% in 2015 with a RevPAR of AUD298, which is better than Sydney’s performance (87% occupancy rate with RevPAR of AUD280). This is driven by 7.85m international visitors (+14% YoY in 2016) and strong domestic interstate visitor expenditure of AUD6.7b in 2015. We gather that the group is likely to retain this for recurring income purposes, although given the ‘right price’ they may consider selling.

The group has site Prahran, High Street in Melbourne CBD (GDV: RM118m, 47 units of apartments). However, we gather that it has a tenanted building on it currently and thus, development will take place in a few years’ time. It was also reported that in Nov 2015, the group’s JV (SETIA-IAL) was shortlisted for the bid to redevelop the old Royal Adelaide Hospital (potential GDV of RM1.5b) into a more upscale area; results are not out yet, but the group is confident of being one of the front-runners for the project. The group is actively looking to expand its land bank in Melbourne and Sydney.

Reiterate OUTPERFORM with TP of RM3.53 based on a discount of 38% to our FD RNAV of RM5.70. The Group has recently launched RM910m worth of projects in Oct 2016 namely: (i) ViiA Residence (GDV: RM450m), and (ii) Setia Sky Seputeh (GDV: RM460m) which has not been recognized in 3Q16. On top of that, they have another RM1.0b new launches for 4Q16, i.e. a total of RM1.9b worth of new launches to drive 4Q16 sales, implying that they should be able to meet their FY16E sales target of RM3.5b. Share price has also taken a beating recently due to market selldowns, providing an opportunity to take advantage of its attractive FY16-17E yields of 5.0-4.4%.

Source: Kenanga Research - 2 Dec 2016