• Acquiring land in Melbourne CBD for AUD61m.

• Sixth piece of land in Melbourne

• Strategic location

• Earnings estimate maintained

• Maintain BUY with Target Price of RM4.03

Acquiring land in Melbourne CBD for AUD61m. S P Setia (SPSETIA) has won a bid for a piece of 1,714 sq m (18,449 sq ft) land at 111, A’Beckett Melbourne Central Business District (CBD) for AUD61m (~RM198m). The Company intends to transform the land into a high-rise residential development. GDV of the project is estimated at AUD419m (~RM1.37b) with expected launch date in 2H2017.

Sixth piece of land in Melbourne. Previously, SPSETIA has acquired five pieces of land in Melbourne and these include: i) 0.2ha Fulton Lane site for AUD30m (in 2009) and developed it into luxury apartments with a GDV of A$470m, ii) 0.9ha land at Parque, iii) 0.51 acre Carnegie land with a price of AUD6.68m in Nov-2015, iv) 850 sq m land in Prahran for AUD10m in Apr-2016 and v) 4,140 sq m land in Melbourne CBD for AUD101m in May-2016.

Strategic location. The land is located less than 15-minutes walking distance away from the Royal Melbourne Institute of Technology University (RMIT). It is also opposite Fulton Lane (SPSETIA’s first project in Melbourne). This may explain its premium valuation of AUD3,306 per sq ft which is higher than its previous purchase of land in Melbourne CBD at AUD2,266 per sq ft.

Earnings estimate maintained. As the project launch is scheduled to be in 2HFY17 and earnings will only be recognised upon completion, we expect earnings to start to kick in only from FY2020 onwards. Hence, we maintain our earnings forecast for FY17 and FY18.

Maintain BUY with TP of RM4.03. Our Target Price is unchanged and it is based on 10% discount to RNAV. We continue to 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 5.1%.

Source: MIDF Research - 21 Jun 2017