SPSETIA's 50% JCE, Retro Highland, entered into a Master Agreement with DBKL for the development of the QSPH in Cheras, KL. In return, the JCE will get the adjacent 77.8 ac leasehold land in Cheras for future development (GDV: RM16.3b) based on a total implied cost of RM809.1m. However, earnings impact will only be felt 5-6 years from now. BUY with a TP of RM2.45. 

SPSETIA via 50% JCE, Retro Highland (RH), has entered into a Master Agreement with Datuk Bandar Kuala Lumpur (DBKL) for the overall development and commissioning of the Quality Sustainable People Housing (QSPH) in Cheras, KL for a consideration of RM579.7m. There is also a minimum profit guarantee of RM229.42m. Payment of the land is staggered over the development period. In exchange, RH will get 77.8 ac leasehold land in Cheras to be developed in the future. 

Potential project GDV of RM16.3b for the exchange land (77.8ac) over a 15-year development period. The land cost, being the development cost of the QSPH and the implied minimum profit guarantee, of RM809.1m (vs. land valuation of RM1.19b) implies a land cost-to-GDV ratio of 5%, which is very attractive considering that most transactions are done at >10% for such prime KL landbanks. 

Given the construction time required to build the QSPH and relocating the existing residents on the exchange land, the earliest significant contribution from this project could be 5-6 years from now. Additionally, there is no impact to FY19-20E net gearings as the project will only be completed in FY2021.

Source: Rakuten Research - 8 Mar 2019