SPSETIA will jointly develop, as land owner, with Mitsui Fudosan (Asia) Malaysia Sdn Bhd (Mitsui) residential towers with GDV of RM1.4b on 2.67 acres of land in Bangsar, with a targeted launch in CY24. While we are positive on the latest development, the enhancement to its valuations is insignificant. We maintain our forecasts, TP of RM0.68 and UNDERPERFORM call.

Joint venture with Mitsui. S P Setia is partnering with Mitsui, which operates the Mitsui Outlet Park KLIA, in a JV to develop two parcels of 2.67 acres commercial land. This land is in Setia Federal Hill, Bangsar which is strategically located opposite of KL Sentral. The development, which has an estimated GDV of RM1.4b, will comprise two residential towers with approximately 1,300 units, with the first tower slated to be launched in CY24. Given that adjacent high-rise units are generally priced at RM1,000/sq ft, the price tag of c.RM1.1m/unit could indicate an estimated unit size of 1,100 sq ft.

Project should be sound but some details are unclear. We believe that the partnership is overall a positive as Mitsui has also been involved in several developments in the past, most notably the retail mall Lalaport Bukit Bintang City Centre which had a GDV of RM1.6b. That said, it is uncertain the breakdown of share ownership between SPSETIA and Mitsui, as well as the details of the land cost and land title.

Assuming the JV is on a 50:50 basis with a targeted completion of four years after launch (i.e. CY27), the project’s potential contribution may only add 1.0 sen and 0.3 sen to our RNAV/share and TP, respectively.

Forecasts. Maintained.

We maintain our TP of RM0.68 on unchanged RNAV discount of 75%, lower than 60% we ascribed to the sector to reflect its high gearing ratio. There is no adjustment to our TP based on ESG given a 3-star ESG rating as appraised by us (see Page 4).

We remain cautious on SPSETIA due to: (i) its significant exposure to the high-end landed and high-rise residential segment, which is not highly sought after by buyers at present, (ii) its high gearing and hence debt servicing obligation amidst a high interest environment, and (iii) losses at its JV projects. Maintain UNDERPERFORM.

Risks to our call include: (i) strong recovery in the property sector, (ii) decline in mortgage rates boosting affordability, (iii) construction costs stabilise/decline, and (iv) lower risks associated with overseas operations.

Source: Kenanga Research - 14 Dec 2023