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S P Setia rises 4.51% after announcing multiple proposals

KUALA LUMPUR (April 17): Property developer S P Setia Bhd saw its share price rise as much as 4.51% this morning after the group announced a plan to buy 342.5 acres of landbank in Bangi, Selangor, and signed a memorandum of intent (MoI) to acquire I&P Group Sdn Bhd, a developer owned by Permodalan Nasional Bhd.

At 10.42am, the counter surged 16 sen or 4.51% to RM3.71, with 2.02 million shares exchanged for a market capitalisation of RM10.53 billion.

Last Friday (April 14), S P Setia entered into a non-binding MoI to commence negotiations on the proposed acquisition of the entire equity interest in I&P Group, which has 4,263 acres of landbank, for an indicative price within the range of RM3.5 billion to RM3.75 billion.

Today, CIMB Research said the Bangi land is priced at RM30 per square feet (psf), plus a share of profit from the development on the land, capped at RM3 psf. These translate to a floor price of RM448 million, with a potential additional payment of RM45 million in the future.

"Based on the expected gross development value (GDV) of RM2.7 billion, the land price is 16–18% of the expected GDV. As such, we are neutral on the proposed acquisition of Bangi land because we expect its GDV to be revised up in the future," said CIMB Research analyst Saw Xiao Jun.

Saw said with I&P Group's remaining landbank of 4,263 acres, S P Setia's land bank reserve could rise by more than 70% to about 10,000 acres after the acquisition.

"S P Setia also believes it could create synergistic opportunities and tap I&P Group's workforce through the acquisition," he explained in a note today.

Meanwhile, the research house said the interest cost related to the land acquisition should be capitalised.

"We expect the Bangi land to start contributing profit in 2020 after the maiden launch in 2019. We also expect the acquisition of I&P Group to have limited impact on S P Setia's earnings in the near term.

"We maintain our hold call with a target price of RM3.45 pending more information about the proposed acquisitions," he added. —

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