S P Setia (Maybank IB Research) buy; target price RM7.15

S P Setia
Swap for prime Bangsar land

Maintain Buy. We are positive on the potential 40-acre land in Bangsar under a land swap agreement with the government. The development could boost our RNAV/sh estimate for S P Setia (SPSB) by 19sen to RM6.47. We retain our RM6.28 RNAV estimate and RM6.90 TP (10% premium to RNAV) for now, which have upside potential. During peak times, SPSB had traded up to a 20% premium to its RNAV which implies RM7.54 potential target based on our existing RNAV estimate.

40 acres in city centre. Edge Weekly reports that 6 research centres under the Ministry of Health’s Institute for Medical Research (IMR) will be housed under a new 1National Institute of Health (1NIH) integrated complex in SPSB’s Setia Alam. In return for the Setia Alam land and RM600m-RM700m construction cost for the new 1NIH complex, the government will swap IMR’s existing 40-acres in Jalan Bangsar. The Bangsar land can be developed by SPSB and its JV partner into an integrated complex of residential and high-rise office buildings.

RM6b GDV? Assuming the new 1NIH complex takes up a similar 40 acres in Setia Alam (which has e.RM60 psf land cost) and RM700m construction cost, we estimate SPSB’s effective cost for the Bangsar land to be RM805m or RM460 psf. This appears fair in view of RM646-1,050 psf recently transacted land prices around that area. We estimate RM6b GDV based on: 1) 9.2m NSA assuming 7.1 plot ratio and 75% efficiency ratio (same as KL Eco City), and 2) RM650 psf ASP (average asking prices of selected Bangsar properties of RM420-1,150 psf now).

SPSB still our top pick. Assuming SPSB takes on a 60% stake in the project, 20% pretax margin and 10 years of development period, the Bangsar land could boost our RNAV estimate by 19 sen to RM6.47. We retain our RNAV estimate and TP for now, with rerating catalysts being better-than-expected sales at KL Eco City, prime land acquisitions, GDV upward revisions for the RM6b KL Eco City and RM5b Setia City, and government land development potential. The new 1NIH building is also expected to enhance demand for the Setia Alam, Setia City and Eco Park projects, as existing IMR employees relocate to Setia Alam.


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