INVESTMENT HIGHLIGHTS

• Acquiring remaining stake in Setia Federal Hill

• Positive on the stake acquisition

• Earnings forecast maintained

• Maintain BUY with a revised TP of RM4.15

Acquiring remaining stake in Setia Federal Hill. S P Setia announced that it has entered into Share Purchase Agreement with Mekar Gemilang Sdn Bhd to acquire the remaining 50% equity stake of Setia Federal Hill for a total cash consideration of RM431.9m. Upon completion of the proposed acquisition, Setia Federal Hill shall become a wholly-owned subsidiary of S P Setia. The proposed acquisition is expected to complete by 3Q2018.

Positive on the stake acquisition. We view the stake acquisition positively as it will potentially increase future earnings of S P Setia. Note that Setia Federal Hill is the registered owner of 51.57 acres of land in Bangsar. Setia Federal Hill is also a joint venture company which was established to undertake development of the land. The land in Bangsar is planned for an integrated development project (estimated GDV: RM20.19b) comprises residential and commercial components with a development period of 15 years. With 100% equity stake in Setia Federal Hill, future earnings contribution from the planned project to S P Setia is expected to be higher.

Earnings forecast maintained. We maintain our earnings forecast as development on the land is expected to start only in 2019. The purchase consideration of RM431.9m is expected to be funded via combination of cash and bank borrowings. Funding is not an issue to S P Setia considering its cash pile of RM5.6b as at end FY17.

Maintain BUY with a revised TP of RM4.15. Our TP is revised marginally higher to RM4.15 from RM4.13 after taking into account of the 100% equity stake in Setia Federal Hill. Our TP is 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. Meanwhile, dividend yield is attractive at 5.3%.

Source: MIDF Research - 9 Mar 2018