• Acquiring I&P Group for RM3.65b

• Rights issue of shares, RCPS-i B and placement of shares

• Positive on the news

• Maintain BUY with higher TP of RM4.13

Acquiring I&P Group for RM3.65b. SP Setia Berhad (SPSETIA) had announced its acquisition of I&P Group Sdn Bhd for RM3.65b which is within the guidance of the range of RM3.50b to RM3.75b previously. As I&P owns 4,276 acres of undeveloped landbanks in the Klang Valley and Johor Bahru, SPSETIA total landbank will be boosted by 83% to 9417 acres post the acquisition of I&P. There is great synergy for the acquisition as SPSETIA already has property development projects in the these areas.

Rights issue of shares. SPSETIA proposed renounceable rights issue to raise up to RM1.2b. The issue price, number of rights shares and the entitlement basis will be determined later at the price fixing date. Having said that, the issue price shall be at 20% discount to its theoretical exrights price.

Rights issue of RCPS-i B. The Company also proposed renounceable rights issue of new class B Islamic Redeemable Convertible Preference Shares (RCPS-i B) to raise up to RM1.2b. The RCPS-i B tenure is perpetual with preferential dividend rate (PDR) of 5.93% annually. After 5 years, the RCPS-i B is redeemable and there will be step up of 1.0% in PDR up to a ceiling of 20% until its redemption date.

Placement of shares. Lastly, SPSETIA proposed placement of shares to raise up to RM1.2b. The issue price shall be determined via book building. However, its illustrative price is RM3.38 and hence the maximum shares to be placed is 355.0m.

Positive on the news. The I&P acquisition is RNAV accretive as we estimate that the market value of its landbank is RM6.15b (against its purchase price of RM3.65b). After factoring in the increase in share base, RNAV per share is expected to be boosted by 2.5% to RM4.59. Lastly, the corporate exercises are expected to fast track SPSETIA plan to be an FBMKLCI member possibly in 2018 (which is faster than our original assumption of 2020).

FY18 earnings increased but EPS is diluted slightly. FY18 core net profit is increased by 22% to RM919m. However, we expect a 5.5% dilution on FY18 EPS due to share base increase. FY17 core net profit and EPS are maintained

Source: MIDF Research - 23 Jun 2017