BY THEAN LEE CHENG

The new S P Setia will have a combined land bank of nearly 10,000 acres and a global branding with existing projects in Britain, Australia and Vietnam. (Filepic shows the PNB HQ building on the left in Jalan Tun Razak, Kuala Lumpur (left). On the right next to it is the Tabung Haji HQ building).

PETALING JAYA: S P Setia Bhd’s proposed acquisition of I&P Group Sdn Bhd puts it in pole position to lead the charge of parent Permodalan Nasional Bhd’s (PNB) vision of becoming a regional property player.

The new S P Setia will have a combined land bank of nearly 10,000 acres and a global branding with existing projects in Britain, Australia and Vietnam.

The move also effectively puts to rest any speculation that PNB will list I&P. Such a move would have prevented S P Setia from growing its land bank to this formidable size, said an analyst.

S P Setia and I&P belong to government-linked fund PNB, which owns 55% and 100% of these companies, respectively. PNB also owns more than 40% of Sime Darby Bhd, which also has a large property arm, Sime Darby Property. These three companies form PNB’s property portfolio.

S P Setia, which was already one of Malaysia’s top developers in terms of sales prior to last Friday’s announcement, is now slated to become Malaysia’s third-largest land owner following this acquisition. It will trail Sime Darby Property and UEM Sunrise Bhd, whose land banks total 28,000 acres and 13,000 acres.

Although Sime Darby has three times the size of the proposed merged entity’s land bank, its land may not be as strategically located, said an analyst.

Notably, Sime Darby had recently announced plans to split itself three ways, creating “pure play” listed entities which will include spinning off its plantation and property divisions.

S P Setia’s 5,218 acres are predominantly located in the Klang Valley, Johor and Penang. I&P has a total of 4,263 acres, including 2,516 acres in the Klang Valley and 1,676 acres in Johor.

To recap, S P Setia is proposing to acquire I&P for a price of between RM3.5bil and RM3.75bil.

If the deal is struck at RM3.75bil, then this averages out to a price of about RM20 per sq ft (psf) for I&P’s land, which analysts said works out to 1.2 times the book value of the land.

Both Hong Leong Investment Bank (HLIB) Research and PublicInvest Research are positive on this initial calculation, although they would like more clarity on the funding structure.

PublicInvest Research analyst Tan Siang Hing said in his report: “The location of I&P’s landbank is within the growth areas in the Klang Valley and Johor and complements S P Setia’s existing projects.”

HLIB Research analyst Lee Meng Horng said in his report that the proximity of both land banks “could potentially yield synergy and enhance value”.

On a gross development value (GDV) per acre basis, S P Setia’s existing land bank is valued at RM14.66mil compared to I&P’s RM10.26mil. The audited net asset value of I&P as at Dec 31, 2016 was RM3.16bil, It has a clean balance sheet and zero net gearing.

S P Setia has a cash pile of RM4.1bil. Its net gearing is 0.16 times and it has a total debt of RM5.8bil. Both their book values are at 1.2 times, according to analyst reports.

While positive on the I&P purchase based on initial calculations, they are less so with S P Setia’s purchase of 342.5 acres in Bangi from Seriemas Development Sdn Bhd, 60% owned by PNB, for RM447.6mil.

CIMB Research analyst Saw Xiao Jun said in his report that this put the land price at RM30 psf, plus a profit-sharing structure on the development, capped at RM3 psf.

“This translates to a floor price of RM448mil, with a potential additional payment of RM45mil in future. Based on the expected GDV of RM2.7bil, the land price is between 16% and 18% of the expected GDV. The land is close to UEM Sunrise’s Serene Heights township and bought in 2010 for RM13.30 psf, it was 9% of the-then estimated GDV of the land,” said Saw.

However, the upside is that at a GDV of RM2.7bil, on a GDV per acre basis, the Bangi land works out to only RM8mil, which is lower than Serene Heights’ GDV per acre of RM15mil.

CIMB is neutral on the Bangi land deal as with most of the other analysts.

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