S P Setia ( ECM Libra Research) hold; target price RM5.20

Another major land deal

The Edge reported that SP Setia has won the government’s bid to acquire 40 acres of prime land in Bangsar, Kuala Lumpur which currently houses six research centres held under the Ministry of Health’s Institute for Medical Research (IMR). The report quoted that SP Setia will build a proposed 1National Institute of Health (1NIH) in Setia Alam to house all the research centres under one roof. As consideration for spending
RM600m to RM700m to construct the alternative site, SP Setia will secure the 40-acre land for redevelopment.

This is a massive boost to SP Setia and again underpins its impeccable landbanking track record. The site (refer to Figure 1) is in close proximity to the successful KL Sentral development, Mid Valley as well as the company’s upcoming KL Eco City. While the development plan is not known at this point in time, we would want to highlight that this site is larger than KL Eco City which spans 24 acres and has a gross development value (GDV) of RM6bn. We believe the potential GDV of this site to be higher than that of KL Eco City although we believe the approved density may be lower here. We anticipate a GDV of RM8bn to RM10bn which will boost SP Setia’s remaining GDV up to RM40bn.

Under review
While this land deal is a major catalyst for SP Setia, we understand that management is still working on several other land deals and more landbanking newsflow can be expected going forward. We will be reviewing our HOLD call and target price of RM5.20 (based on 20x CY11 P/E) pending the announcement of the said land deal by SP Setia.
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