INVESTMENT HIGHLIGHTS

• Getting 52.25 acres land in Cheras

• Positive on the agreement

• Project GDV at RM11b

• Maintain BUY with unchanged TP of RM4.15

Getting 52.25 acres land in Cheras. S P Setia announced that its 50% owned entity Retro Highland entered into a privatisation agreement with Dewan Bandar Kuala Lumpur (DBKL) for the construction of the Quality Sustainable People Housing (QSPH) project in Cheras. The overall QSPH development entails the renewal of 5650 residential units. In return, Retro Highland will be awarded with 52.25 acres of leasehold land in Cheras with agreed value of the exchange land of RM1.19b.

Details of agreement. Phase 1 of QSPH entails the construction of 1192 residential units and is expected to take up four years to complete. Meanwhile, phase 2 of QSPH entails the construction of 2779 residential units, 112 units of shops, a market and other public facilities. Phase 2 will commence upon the handing over of Phase 1 to DBKL and is expected to take another four years to complete. The entire QSPH is expected to complete in 2028. Meanwhile, DBKL will transfer 13.89 acres of land in Cheras to Retro Highland upon completion of phase 1 of QSPH while the remaining 38.36 acres of land will be transferred to Retro Highland upon the completion of phase 2 of QSPH.

Positive on the agreement. We view the agreement positively as the exchanged land is strategically located alongside Jalan Loke Yew (8km to KLCC). The exchanged land is planned for a mixed development project which comprises residential and commercial components with total estimated GDV of RM11.03b and development period of 11 years. The proposed development will allow S P Setia to continue to strengthen its presence in Klang Valley. The QSPH development is expected to be funded via a combination of bank borrowings and internally generated funds. Net gearing of S P Setia is expected to climb to 0.16x from 0.11x as of end FY17.

Maintain BUY with unchanged TP of RM4.15. We maintain our earnings forecast and RNAV valuation as development on the land is expected to start after 2028. Our TP is based on 10% discount to RNAV.

Source: MIDF Research - 8 May 2018