SPSETIA has successfully tendered for 4.6ac land along Toh Tuck Road, Singapore for SGD265m. The expected GDV is SGD457m. No surprise here as this had been in the media. We are neutral to positive as it will lift FY18E sales but with no major impact to our estimated FD RNAV while net gearing moves up to 0.36x. Hence, there are no changes to earnings. Slightly higher TP of RM3.86 (from RM3.85) post this acquisition. Reiterate OUTPERFORM.

Successful tender of 4.6 ac leasehold land along Toh Tuck Road, Singapore for SGD265.0m (RM847.6m) from the Urban Redevelopment Authority (URA). Acquisition is expected to be completed by 3Q17. The land has a maximum permissible GFA of 0.28m sf for a 5-storey condominium (327 units) and is located near Bukit Timah with the nearest MRT station (Beauty World MRT) being 650m away. The project has a GDV of SGD457m (RM1.46b) which is expected to be launched in FY18 with a 5-year development period which would be the group?s third Singapore project.

Not surprised by the acquisition, as there were media reports stating that SPSETIA was the highest bidder for the land. The land cost to GDV ratio is at 58% which is fair as land cost tends to make up 55%-65% of GDV in Singapore. The acquisition will mainly be funded by borrowings and internal funds and we expect FY17E net gearing to increase to 0.36x from 0.30x which is still at comfortable level; note that our estimates already accounted for the completion of the Seberang Prai and Bangi lands. The project raises our FD RNAV by 1.0 sen to RM5.73. Overall, we are neutral to slightly positive on the announcement as the group is aggressively replenishing its overseas drivers.

Awaiting details of the acquisition of I&P. Last week, the group signed an MOI to acquire I&P from PNB and ASB for RM3.50- RM3.75b. Finalization of the acquisition price and funding structure will be made known in three months? time. Given SPSETIA?s ambition to achieve the RM15.0b market capitalisation size for inclusion in the FBMKLCI, we believe a 1-for-2 rights issue is likely. We view the acquisition positively (refer to 17/4/17 report).

No changes to earnings. While we maintain FY17E sales at RM4.0b, we raised FY18E by 5% to RM4.2b given the expected launching of the Toh Tuck Road project by FY18. However, meaningful earnings contributions will only be felt from FY19 onwards.

Reiterate OUTPERFORM. Overall, we are positive on its aggressive growth path. Our TP is slightly higher at RM3.86 (from RM3.85) based on a discount of 35% (+1.0SD) to an increased FD RNAV of RM5.73. The stock is expected to fare well given the accretive acquisition of I&P while we believe that property stocks are due for a re-rating given the better broad market performance on the back of reduced sales and earnings risks.

Risks include: (i) weaker property sales, (ii) margin fluctuations, (iii) changes in real estate policies and lending environment, and (iv) timing of overseas/local billings.

Source: Kenanga Research - 19 Apr 2017