Kenanga Research upgrades S P Setia to BUY, FV RM4.90

KUALA LUMPUR: Kenanga Investment Research has upgraded S P Setia Bhd (S P) to BUY, from Trading BUY, with higher fair value of RM4.90.

It said on Friday, Jan 22 its fair value implied FY10E price-to-earnings ratio (PER) of 24 times, which are peak valuations experienced over FY07; but FY11-12 estimated valuations become compelling at 19 times to 17 times PERs.

"S P is still tightly held by Tan Sri Liew Kee Sin (14%) and strong institutional support from PNB (32.9%) and EPF (11%). Since FY07, S P has traded above 15 times PER and 1.3 time price-to-book value (PBV).

Kenanga Research expects earnings accretion to pick-up pace. Over the last few years, S P has diversified away from township activities to undertaking more commercial projects (Setia Walk), niche residential projects (Sky Residences) and high growth market’s like Penang (Setia Pearl Island, Setia Vista).

New projects are smaller in sizes (<50ac) suggesting S P is moving towards quicker turnaround strategies; e.g. Setia View @ Penang, Jln Brook @ Penang, Sungai Ara @ Penang, KL Eco City and Aeropod @ Sabah.

"We expect residential (mid to mid high segments) to drive FY10’s property sector and S P Setia is poised to be a key beneficiary. Notably, 2M10 sales of RM436 million exceed expectations or 27% of FY10 estimated sales target of RM1.6 billion," it said.
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