OSK Research: Maintain ‘take profit’ on S P Setia

S P Setia: Venturing “Down Under”

The Buzz

S P Setia (SPSB) proposed yesterday to acquire a piece of land measuring about 1.07 acres in Melbourne’s Central Business District (Australia) for A$30m (about RM92.4 million, RM1,982psf). The acquisition is expected to be completed in FY2010 and will be SPSB’s first venture into Australia (Bursa).

Our take

Strategic location. The 1.07-acre land is strategically located in the Melbourne’s Central Business District (CBD) in the northern precinct, between A’Beckett Street and Franklin Street, and between Elizabeth and Queen streets. The site is an estimated 5-10 minutes’ walk to the Melbourne Central Shopping Centre and Railway Station, Queen Victoria Market, the RMIT University City Campus and Flagstaff Garden. The University of Melbourne is a mere 15-20 minutes’ walk from the site.

What is the estimated GDV? Assuming the price paid is fair and represents about 10%-15% of the budgeted GDV, the projected value of the upcoming project could be between A$200 million to A$300 million. In any case, management reckons that it is still too preliminary to disclose the potential GDV. The development is slated for a high-density inner-city integrated residential and commercial project, which will also likely comprise serviced apartments or condominiums.

Project not included in forecast for now. In addition to the GDV, details on the estimated total development costs, launch dates and other launching details are currently sketchy at best. As such, we are not including the upcoming project into our forecast and valuation at this juncture. The proposed acquisition of the land, however, is expected to be completed by FY2010 and the project launch is targeted for 18-24 months from the date of acquisition.

Positive on the deal, based on location. The proximity of the land to several premier Australian universities and colleges will enable SPSB to monetise its Malaysian customer base, many of whom have sent their children for further their education in Melbourne and have consequently invested in or are looking to invest in properties there. Based on the 2006 census published by the Australian Bureau of Statistics, an estimated 29,174 Malaysian born individuals are currently residing in Melbourne. This therefore presents SPSB with an opportunity to reach out to this market segment. In addition to the fact that several premier universities and colleges are a short walk away, SPSB will also be able to leverage on the many other locational advantages in the vicinity, such as its proximity to public transport, including railway trains and trams as well as the Queen Victoria Market, which is frequented by most students for their weekly grocery shopping. Overall, we are quite positive on SPSB’s choice of location.

Maintain Take Profit. Notwithstanding the fact that we are positive on the proposed land acquisition (based on the choice location), SPSB’s near-term valuation remains rather lofty for now. As such, we maintain our Take Profit call based on a CY2010 target price of RM3.59, based on 1.69x CY2010 P/NTA.