ECM Libra: SP Setia - Lai Thieu project safely in the bag

Lai Thieu project safely in the bag

Secures investment certificate for Lai Thieu
SP Setia announced yesterday that it has secured the all-important investment certificate for its project in Lai Thieu Town, Thuan An District, Binh Duong Province, Vietnam. Recall that, in Oct 2009, the company has entered into an in-principle agreement with Investment and Industrial Development Corporation (Becamex IDC Corp) for the acquisition of the 26.79-acre land a cash consideration of US$16.26m (RM55.3m). Under the investment certificate, Setia Lai Thieu One Member Company Limited will be established with a charter capital of USD6.5m to undertake the project, which will be known as Eco-Xuan Lai Thieu, for a term of 50 years.

The project entails a mixed-development comprising shop houses, terrace houses, semi-detached houses, commercial centres, club house and apartments all for sale and/or lease in accordance with the laws of Vietnam. SP Setia will commence construction works for the initial phase upon the relevant development approvals and/or permits being obtained.

This is a positive development as the procurement of investment certificate in Vietnam has often been cited as reason for delay in project commencement. The project with GDV of RM880m is likely to start within a year. As such, earnings contribution will only commence from FY2011.

We have yet to factor any contribution from this project into our earnings estimate.
Although share price has achieved our target price of RM4.05 (based on upper-end P/E valuation of 20x on CY10 EPS) since we upgraded SP Setia to a buy in December 2009, there is scope for earnings and TP upgrade given strong sales performance so far which has exceed our expectation. Management has also recently raised its FY10 sales target from RM1.65bn to RM2bn. We maintain our BUY call and will review our estimates and target price when SP Setia announces its 1QFY10 results on 18 March.
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