INVESTMENT HIGHLIGHTS

• Potential sale of commercial assets in Phase 2 Battersea Power Station to PNB and EPF

• Neutral to positive on the news

• Earnings estimate maintained

• Maintain BUY with TP of RM4.13

Potential sale of commercial assets in Phase 2 Battersea Power Station to PNB and EPF. S P Setia announced that it has entered into a Heads of Terms with PNB and EPF to explore the terms of a potential sale, on completion, of the commercial assets in Phase 2 of Battersea Power Station to a joint venture company to be formed between PNB and EPF. The indicative sale price is estimated to be about GBP1,609m or equivalent to RM8.8b. We gather that the commercial assets in phase 2 of Battersea Power Station are office and retail buildings while expected completion of the commercial assets is expected to be in 2020.

Neutral to positive on the news. We view the potential sale of commercial assets in phase 2 of Battersea Power Station to be neutral to positive. The potential sale of the commercial assets will enable S P Setia to unlock the value of the commercial assets while allowing S P Setia to focus on its role as property developer. With the potential sale of the commercial assets in phase 2 of Battersea Power Station, S P Setia will now focus on securing the development profit from the remaining development in phase 3 to 7 of the Battersea Power Station project.

Earnings estimate maintained. We do not expect earnings impact from the potential sale of commercial assets on S P Setia in the near term as completion of the commercial buildings is expected to take place in 2020. Hence, we maintain our earnings forecast for FY17/18.

Maintain BUY with TP of RM4.13. We maintain our TP at RM4.13, based on 10% discount to RNAV. We maintain our BUY call on S P Setia for its plan to be included as one of the FBM KLCI component stocks. Besides, dividend yield of S P Setia is attractive at 5.8%.

Source: MIDF Research - 19 Jan 2018