KUALA LUMPUR (May 10): Analysts have raised their target prices (TPs) for S P Setia Bhd after the company sold eight parcels of land measuring 959.7 acres (about 388.38 hectares) in Tebrau, Johor Baru for RM518 million.

Kenanga Research’s Marie Vaz raised the stock to an "outperform" and increased its TP to RM1.19 from 94 sen prior on expectations that the deal will contribute to earnings for the financial year ending Dec 31, 2022 (FY22) and beyond.

“We like the fact that S P Setia is monetising its land bank in Johor, which has been a challenging market, freeing up cash for its other development projects.

“Meanwhile, we believe the impact on its gearing in FY22 would be minimal, lowering it marginally to 0.63 times from 0.65 times once the disposal materialises,” she said, noting that the sale will be concluded in phases.

She deemed the land disposal price of RM12 psf to RM13 psf as decent, given that most agricultural land in Johor is sold at around RM8.50 psf to RM15 psf.

Assuming the first phase of the disposal, which is worth RM236.1 million, is completed by the first quarter of 2022 (1Q22), the core net profit (CNP) estimate could rise by 24% for FY22 to RM509 million.

Meanwhile, the subsequent two phases of RM141.3 million (2Q23) and RM140.2 million (2Q24) could, in addition to improved prospects for its local and foreign property markets, boost the FY23-24 CNP estimates.

“For now, FY21-22 will be driven by steady recognitions from ongoing projects and unbilled sales, as well as more significant contributions from Battersea, which is expected to be completed by August 2021 for Phase 2 and March 2022 for Phase 3A,” she said.

On the other hand, AmInvestment Research’s Lee Ching Poh raised her fair value (FV) to 92 sen from 85 sen prior, but kept her "hold" reccommendation on the stock, based on a 50% discount on a 5% higher RNAV of RM8.2 billion, and a neutral environmental, social and governance (ESG) rating of three stars.

She maintained her forecasts for the company, pending the completion of the first phase of the disposal by 1Q22.

Lee noted that the disposal should help the group to reduce its net gearing by 1% to 3% to 0.48 times to 0.5 times.

“We are positive on this development, which would monetise its undeveloped land bank while allowing the group to focus on existing projects, in line with its cost rationalisation initiatives for better operational efficiency,” she said.

Post disposal, the group’s total land bank will shrink by 11% to 7,569 acres to 8,528 acres (as at Dec 31, 2020).

To recap, S P Setia announced that it was selling the land to Scientex Bhd’s unit Scientex Quatari Sdn Bhd.

The parcels are located 28km away from the Johor Baru city centre and 18km away from the Senai International Airport, and are accessible via the Pasir Gudang Highway.

At 10.29am, the stock was down one sen or 0.94% at RM1.05. It had a market capitalisation of RM4.3 billion.

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