Wins Land Tender In Singapore

SP Setia has won a tender for a 4.6-acre (18,721.4 sqm) parcel of residential land at Toh Tuck Road in Singapore (99-year lease term) for SGD265mn (or RM847.6mn) from the Urban Redevelopment Authority of Singapore. According to the announcement, SP Setia intends to fund the tender bid through a combination of bank borrowings and/or internally generated funds.

Location of the Land

The 4.6-acre residential plot at Toh Tuck Road is situated near prime Bukit Timah housing district and is within walking distance to Beauty World MRT Station – see Figure 1. Amenities in the vicinity include international schools, tertiary education centres, parks and shopping malls. It has a maximum permissible gross floor area (GFA) of 26,210 sqm, which would allow the developer to build a 5 storey condominium with 327 units.

Tender price is 2% above the second highest bid

The tender price of SGD265mn translates to SGD939psf per plot ratio. According to URA, SP Setia’s bid came in highest among 24 bidders and at 2% above the second highest bid of SGD260.2mn by Singaiyi Investments – see

Figure 2. The bidding war suggests that developers remain upbeat on residential development within Singapore and show great interest on prime residential land with close proximity to public transportation and is surrounded by good amenities and services.

Third foray into the Singapore property market

SP Setia intends to build a 5 storey condominium with an estimated GDV of SGD457mn. Official launch is targeted in 2018. The project is expected to span a development period of 5 years. Meanwhile, we deem the land cost-to-GDV ratio of 58% of total project GDV fair, given that land typically makes up 40% to 60% of GDV in Singapore. Overall, we are positive on SP Setia’s third foray into the Singapore property market. This will allow the group to diversify market risks and help strengthen its corporate branding in the regional market, which would be helpful to market its products to foreign buyers. In addition, we believe the land tender provides an opportunity for the group to replenish its landbank in Singapore. It is a timely win as SP Setia’s 18 Woodsville and Eco Sanctuary have been successfully completed in 2015 and 2016 respectively.

Forecast

We raise our FY19 earnings by 1%, after factoring in the launch of this project in 2018. Nevertheless, we have not factored in earnings contribution from I&P and the Bangi land acquisition pending the completion of the deals.

Recommendation

Target price is maintained at RM4.10/share, based on unchanged 18x CY18 EPS. We are positive on the proposed acquisition of I&P, which will further solidify SP Setia as a dominant township player in the central Klang Valley and Johor. Maintain Buy.

Source: TA Research- 19 Apr 2017