INVESTMENT HIGHLIGHTS

• Acquiring I&P Group

• Landbanking in Bangi as well

• Positive on both of the news – landbank to surge by 88%.

• Earnings estimate unchanged

• Upgrade to BUY with TP of RM4.00

Acquiring I&P Group. SP Setia Berhad (SPSETIA) had entered into a non-binding Memorandum Of Intent (MOI) to commence negotiations on the proposed acquisition of the entire equity interest of I&P Group Sdn Berhad (I&P). We gather that the purchase price for I&P is estimated to be within the range of RM3.50b to RM3.75b. The final price will be determined after due diligence and valuation exercise. Fundings can be from combination of equity, internally generated funds and borrowings. Note that I&P has a sizeable remaining landbanks of 4,263 acres located in Klang Valley and Johor Bahru.

Landbanking in Bangi as well. Separately, SPSETIA has announced that it is acquiring a 342.5 acres of land in Bangi, Selangor from Seriemas Development Sdn Bhd (SDSB). SDSB is a subsidiary of PNB Development Sdn Bhd which in turn is a 100% owned subsidiary of PNB. The purchase amount is RM447.58m (RM30 per sqft) plus a 20% share of profit from the future development (up to a maximum RM3 per sqft). We gather that the Bangi Land is earmarked for mixed development (commercial + residential) with GDV of RM2.74b.

Positive on both of the news – landbank to surge by 88%. We believe that the re-rating catalyst for SPSETIA has just emerged as the Company is poised to join the FBMKLCI in three years time, based on our estimate. Combined with current landbank of 5218 acres, SPSETIA total landbank will eventually increase by 88% to 9824 acres. We are confident that the increased acreage should eventually lead to higher earnings (and hence market cap). The acquisition of I&P is also synergistic as its landbank are located in the growth area of the Klang Valley and Johor Bahru. As for the Bangi Land, synergy can be realized as it is located within the 5-km radius from Setia Ecohill and Setia Ecohill 2 at Semenyih.

Earnings estimate unchanged. Pending more details on I&P earnings and the final acquisition price, we maintain our FY17 and FY18 earnings estimate at RM724m and RM751m respectively.

Upgrade to BUY with TP of RM4.00. Our Target Price has been increased to RM4.00 (from RM3.40) as we have added in the Bangi Land into our RNAV and reduced the discount to RNAV to 10% (from 15%). The lower discount is applied to reflect our optimism of the great synergy to be realized from the I&P deal and Bangi land. Overall, we like SPSETIA due to: i) our belief that it will gain FBMKLCI status in 3 years time, ii) positive newsflow surrounding the I&P deal and iii) good dividend yield of 5.2%.

Source: MIDF Research - 17 Apr 2017