• Maintain BUY, with new MYR1.56 TP from MYR1.24, 17% upside. Our recent meeting with management reaffirms our positive view on SP Setia. Its sizeable landbank portfolio provides good flexibility to be nimble to changes in market conditions, and roll out more industrial park developments. De- gearing plans are on track, and given the potential proceeds from land disposals and upcoming cash commitment for developments, we expect gearing to stabilise at the current level. To reflect the better turnaround prospects, our new TP is based on a 50% discount to RNAV (from 60%).

• Strong demand for Setia Alaman. SP Setia is in the midst of getting approvals to rezone Setia Alaman Industrial Park (GDV: MYR3.09b) for industrial use. The industrial park spans 399 acres, comprising of 35 plots of industrial land and six plots of commercial land. Some land parcels were recently transacted by logistics players at MYR140-160 psf, well exceeding management’s initial expectations. The attractive price is largely attributed to its strategic location and connectivity, linked to major highways like Jalan Meru and the North Klang Valley Expressway or NKVE. Other than the outright sale of industrial plots, SP Setia is also planning a JV for the co-development of certain plots.

• Other upcoming industrial developments. In the coming years, SP Setia is also planning to launch industrial developments in Tanjung Kupang, Johor (GDV: MYR1.87bn) and Setia Fontaines, Penang (GDV: 1.68bn). For Tanjung Kupang, management is currently in advanced negotiations for a 50:50 JV with another reputable industrial park developer. For Setia Fontaines, the company is in the process of converting 323 acres of land for industrial use and is working on another potential JV to develop the area. This will be adjacent to its existing 801 acres of residential and commercial land, but this project is only slated for launch in 2026.

• De-gearing plans on track: We expect about MYR130-140m gain on land disposals to be recorded this year, mostly from Bandar Setia Alam and Glengowrie, Semenyih. Management shared that the 960-acre Tebrau land has received new suitors at a slightly higher price after the sale & purchase agreement to Scientex Lestari (for MYR547.7m) was terminated earlier this year. All in, we expect SP Setia’s net gearing to stabilise at the current level.

• Potential REIT listing to lighten balance sheet. SP Setia is in the preliminary stage of listing some of its investment properties, and has identified a diverse list of potential assets in various sub-sectors such as Setia City Mall (retail), KL Eco City (office), and Tenby Setia Eco Park (Education). We think this would be a positive as it would lighten its balance sheet further.

• Key risks: i) Changes in senior management team which could result in a change in business strategy, and ii) unexpected slowdown in economic growth.

Source: RHB Research - 26 Mar 2024