Merging with PNB’s property companies? We are not surprised by potential M&As involving unlisted property companies within the stable of SP Setia’s (SPSB) 64%-shareholder, PNB. To us, the merger is just a matter of time, as we already view SPSB as PNB’s key property arm. SPSB could be the largest listed developer in Malaysia, if the M&A materialises. For now, there is no change to our earnings forecasts, MYR3.52 TP (0.7x PNAV) and HOLD rating.

Potential asset injections from PNB? PNB is mulling over injecting its property assets currently housed in unlisted I&P Group (I&P Bhd, Petaling Garden Bhd and Pelangi Bhd) into SPSB, reports The Edge. To recap, PNB privatised the three companies between 2005-2007 and rationalised its holding in the three companies by merging them in 2009. I&P Group’s assets could be worth MYR10b, we understand.

Rolled into one? This move is not unexpected as SPSB has a more established customer base, stronger brandname and management team as well as a proven track record. If the merger materialises, it should unlock the maximum potential of PNB’s landbank. Our study on I&P Group’s landbank (pre-privatisation; see Table 1) reveals that it has large tracts of land in hotspot areas in Johor, Klang Valley and Negeri Sembilan. We think it is also possible that PNB could consolidate the landbank of 47%-owned Sime Darby into SPSB.

3Q13 results preview. SPSB’s 3QFY10/13 results, to be released on 26 September, are likely to meet expectations. We forecast 3QFY10/13 net profit at around MYR125-135m (+41% QoQ, +34% YoY), lifting 9MFY10/13 earnings to MYR324m, or 70% of our full-year estimate. SPSB has locked in MYR4.7b in property sales in 8MFY10/13, and is likely to exceed its FY10/13 internal sales target of MYR5.5b.

Reiterate HOLD. Despite record property sales and huge unbilled sales of MYR7.3b as at May 2013, uncertainties surrounding senior management’s continuous presence in SPSB could cap its share price. Our TP is based on 0.7x P/RNAV (0.1x below its historical mean).

Source: Maybank Research - 23 Sep 2013