SP Setia Johor site visit by MIDF Research

SP Setia Reaffirm NEUTRAL

Unchanged Target Price (TP): RM3.99

We  recently  visited  some  key  developments  by  SP Setia  in  Johor.  Some of  the  notable  projects  we visited  were  Setia  Tropika,  Setia  Eco  Garden  and

Bukit Indah. Below are the takeaways of the visit:-

* Average  take-up  rates  remains  strong.  SP  Setia Bhd (SPSB) has 3 key projects in Johor:-

a)  Setia Tropika at 50%-60%

b)  Setia Eco Garden

c)  Bukit Indah –  Matured development.

* New features for affluent purchasers. Apart from the location  and  well-placed  infrastructure,  the  premium pricing  by  SPSB  is  justified  with  the  inclusion  of new features  such  as  lifestyle  amenities  (eg:  eateries  eg: Starbucks  in  Setia  Tropika),  higher  house  platform (situated  1m  –  1.5m  above  ground  levels),  reflection ponds, central gated system etc.

*  Johor remains key contributor to earnings. Johor contributes up to 50% of SPSB’s revenue. The development of SP Setia’s high-end products with higher profit margins, especially from its Setia Tropika and township development of Setia Eco Park, will continue to be its major earnings contributor.

*  Southern region market leader. SP Setia remains the leading property developer in JB followed by KSL Holding and the Mah Sing Group. Nevertheless, the local Johorean developers are still vital given their present strategic landbank holdings.

*  Maintain NEUTRAL with TP of RM3.99 based on a 30% discount to RNAV. The counter is currently trading at 17.2x  EPS10, between its 5-year range between 10.7x – 20.1x but above peers’ average PER of 16.9x.