S P Setia (AmResearch) maintain buy; fair value RM7.38

Investment Highlights

• We maintain our BUY rating on SP Setia Bhd and raise our fair value from RM7.10/share to RM7.38/share – based on an unchanged 5% discount to our revised fully-diluted (FD)
NAV of RM7.77/share.

• We lifted our FD NAV from RM7.46/share to RM7.77/share to account for the estimated accretion to the group’s asset value from its latest acquisition of some 268 acres of
residential land in Cyberjaya for RM420mil or RM36psf, which we deem to be attractive in view of growing residential demand in the locality.

• The said land is strategically located within the Cyberjaya Flagship Zone, and is easily accessible and wellconnected by a network of highways including the North-South Expressway, the MAJU Expressway and the Damansara-Puchong Expressway. The land is within a relatively short 30 minutes’ drive to the city centre.

• The group plans to develop a mid- to high-end gated and guarded residential development with a combined GDV of RM3bil, making it the most prolific residential project in
Cyberjaya. Maiden presales are expected to commence in FY12F.

• The immediate development potential of this project is high, gauging from take-ups of other projects in the locality, for e.g. Mah Sing’s Garden Residence, which has an average take-up rate of 85%. This project is also a midto high-end gated and guarded residential development which was launched in March 2010.

• In our earnings model, we have assumed some RM100mil presales in FY12F for SP Setia from this latest proposed project, rising significantly to RM300mil in FY13F. Hence, we have raised our earnings estimates by some 5% in FY12F and 7% in FY13F to RM384mil and RM469mil, respectively.

• We believe that the recent share price retracement has surely more than priced-in the market’s concern over the potential share overhang and earnings dilution, stemming from its proposed placement of shares.

• In any case, we believe the share overhang risk has been significantly overplayed given the firm commitment from its major shareholders, and the potential for NAV growth from NAV-accretive deals. This landbanking in Cyberjaya is just the start, we believe.




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