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ECM Libra Research maintains Buy on SP Setia at RM4.05

KUALA LUMPUR: ECM Libra Investment Research is maintaining its Buy call and target price for SP Setia at RM4.05 based on upper-end P/E valuation of 20 times on CY10 EPS.

It said on Wednesday, March 17 it did not expect a material impact after the property company terminated the 50:50 joint venture for the Setia View project in Penang.

SP Setia has since filed a writ of summons and statement of claim against its joint venture partner PPH Resorts (Penang) Sdn Bhd to recover RM12.2 million of advances and development project expenditure incurred.

PPH has filed a counter-action for, amongst others, the recovery of the sum of RM5.72m and damages alleged to have been suffered to be assessed by the court.

ECM Libra Investment Research said this joint venture was to develop a high-end bungalow project on a 45-acre land adjacent to its on-going Setia Pearl Island project, which has a gross development value of RM300 million.

“While this is a setback to SP Setia, the impact from the termination of this project is negligible as our RNAV estimate will only be shaved off by a mere 2 sen to RM4.06. Impact to earnings is also negligible. As we have only assumed this project to take off in late FY2012, it will only reduce our FY2012 earnings estimate by 0.9%.

“However, if SP Setia is unsuccessful in defending its claim against PPH, it may need to write down RM12.2 million of receivable as well as incur another RM5.72 million loss. This could potential shave off 1.8 sen per share or 8.9% of FY2010 earnings,” it said.

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