We upgrade SP Setia to TRADING BUY with an unchanged MYR3.54 FV. While  current  valuations  have  largely  reflected  the  loss  of  key management personnel, focus will soon be redirected to PNB’s move in strategising  its  substantial-owned  investee  company.  Apart  from  the usual  market  expectations  of  the  I&P  group  of  companies  being injected, Tan Sri Syed Mokhtar is now said to be an interested buyer.

• Tan  Sri  Syed  Mokhtar  Al-Bukhary  (TSSM)  eyeing  SP  Setia?  The Edge  reported  that  TSSM  put  in  an  unsolicited  proposal  to  buy  a substantial portion  of  Permodalan  Nasional  (PNB)’s  stake in  SP  Setia.The article also indicated that PNB asked for MYR5.00/share.
• Tan Sri Liew  Kee Sin  has exited  as a shareholder.  The market may speculate that TSSM’s potential entrance could pave the way for Liew  to “re-enter”  SP Setia, given that the former  had  previously  sold some land parcels to Eco World  (ECW MK, NR)  where the latter’s  son is the major shareholder. W e  note,  however,  that  Liew  has  exercised  the  third  and final tranche of  his  put option on 21  March, thus  he is no longer a  SP Setia  shareholder.  In  our  view,  it  may  not  be easy  for  TSSM  to  buy  a substantial  stake  at  MYR5.00/share,  as  he  will  need  to  fork  out  a whopping MYR3.7bn just to buy, say,  a  30% stake.  PNB’s high asking price,  which  is  a  13%  premium  to  our  MYR4.42   RNAV/share,  also indicates that it is not keen to reduce its stake.
• M&A angle a new catalyst.  Nevertheless, news flow on potential M&As for SP Setia should be investors’ new focus . The current valuations have largely  factored in  the loss  of  key  management  personnel and,  hence,declining property sales and market position. In our view,  the prolonged undervaluation  will  likely  prompt  PNB  to  re-strategise  the  company,either  via  asset  injections  or  introducing  a  new  leader.  We  believe  it should have plans underway,  given that  SP Setia’s current COO  Dato’ Voon Tin Yow  will assume the role of acting president and CEO for only one  year,  ie  1  May  2014-30  April  2015.  Meanwhile,  PNB’s  MYR3.95 takeover  offer  price  two  years  ago  sets  the  benchmark  for  any  other M&A proposals.
• Upgrade to TRADING  BUY.  The news could stir  up investors’ trading interest  over the near term.  As the worst could be over, we upgrade the stock to TRADING BUY with an unchanged MYR3.54 FV. 

Financial Exhibits

SWOT Analysis

Company Profile
SP Setia has been the property sector bellwether over the years. The company has a large presence in many key areas in Malaysia. In 2012, the company  ventured into London via the  MYR40bn Battersea project  joint venture  with the  Employees  Provident  Fund  and Sime Darby.

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Source: RHB