S P Setia - Sells 960-acre Johor Land for RM564m

Date: 
2024-06-12
Firm: 
KENANGA
Stock: 
Price Target: 
0.85
Price Call: 
SELL
Last Price: 
1.57
Upside/Downside: 
-0.72 (45.86%)

SPSETIA has sold 959.7-acre land in Tebrau, Johor, for RM564m cash. We believe the pricing is fair as it is in line with the transacted market price within the area. We are positive on the latest development which in-line with its strategy to monetise selected land parcels to de-gear. We raise our FY24-25F earnings forecasts by 0.7% and 0.4%, respectively, lift our TP by 6% to RM0.85 (from RM0.80) but maintain our UNDERPERFORM call.

SPSETIA has sold 959.7-acre land in Tebrau to Senibong Island Sdn Bhd (reportedly linked to tycoon Tan Sri Syed Mokhtar) for RM564m cash. The land was previously intended for sale to SCIENTX (UP; TP: RM3.95) at RM547.7m but fell through as a waiver for Bumiputera equity conditions was refused.

At RM13.50 per sq ft (psf), the price tag is within the market price range of RM11-RM14psf. SPSETIA reported RM332.0m gains from the disposal.

We are positive on the latest development which in-line with the group’s strategy to monetise selected land parcels to de-gear its balance sheet. The proceeds will reduce its net debt and gearing of RM7.1b and 0.49x as at end-Mar 2024 to RM6.5b and 0.45x, respectively.

Separately, SPSETIA said that it has commenced pre-IPO preparatory work for a REIT to unlock value of its property investment portfolio, which we believe, comprises among others, Setia City Mall, Setia Convention Centre and Amari KL Hotel.

Forecasts. While we consider the transaction as one-off item, we raise our FY24-25F earnings forecasts by 0.7% and 0.4%, respectively, to reflect interest savings from the proceeds.

Valuations. We also raise our TP by 6% to RM0.85 (from RM0.80), having reflected gains from the disposal. We continue to apply an RNAV discount of 75%, vs. 55% average for the sector, to reflect the low realisability of SPSETIA’s GDV. There is no adjustment to our TP based on ESG given a 3-star ESG rating as appraised by us (see Page 4).

Investment case. We remain cautious on SPSETIA due to: (i) its significant exposure to the high-end landed and high-rise residential segments, which are not highly sought after by buyers at present, (ii) its high gearing and hence debt servicing obligation amidst a high interest environment, and (iii) losses at its JV projects. Maintain UNDERPERFORM.

Risks to our call include: (i) strong recovery in the property sector, (ii) changes mortgage rates boosting affordability, (iii) construction costs stabilise/decline, and (iv) risks associated with overseas operations.

Source: Kenanga Research - 12 Jun 2024

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