Analysts approve of company’s acquisition of Penang freehold land for RM620mil
PETALING JAYA: Most analysts are positive on SP Setia Bhd’s recent winning bid to buy freehold land measuring about 1,675 acres in Penang for RM620.12mil as it marks the property developer’s maiden presence in Penang at an attractive land cost.
“We are positive on the deal given the attractive low land cost as a percentage of gross development value (GDV) and its maiden presence in the mainland of Penang.
“The acquisition price is translated to RM8.50 per sq ft (psf) or 6.5% of total GDV, which we deem attractive.
“Net gearing is expected to increase from 0.17 times to 0.26 times, which is still manageable.
“We expect the project to increase our revised net asset value estimation by 9% with assumption of 30% earning before interest and tax (Ebit) margin,” said Hong Leong Investment Bank (HLIB).
With this acquisition, it expects total remaining GDV for the company to increase by 16% to RM71.5bil.
It said SP Setia has maintained its sales target of RM3.5bil on the back of RM4.2bil worth of launches.
Major launches for the second half of this year comprise of high-rise projects such as ViiA Residence with GDV of RM407mil, Setia Sky Seputeh with a GDV of RM458mil, Trio by Setia with a GDV of RM220mil and Setia Sky Ville with a GDV of RM453mil.
“We are cautious on these high rise projects given the high entry price amidst softer property market,” said HILB in report yesterday.
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Meanwhile, RHB Research is also positive on SP Setia’s acquisition of the land in Seberang Perai Utara.
“This acquisition is sizeable enough that it would allow SP Setia to have an anchor presence in mainland Penang, given that some of its peers have also recently bought some land there.
“This transaction marks the company’s first major move after the stabilisation of its new management team,” said RHB Research, which has maintained its “buy” rating, with an unchanged target price of RM4.
SP Setia recently won the tender to buy the freehold land in Penang for RM620.12mil.
The land is strategically located within the Butterworth-Sungai Petani Growth Corridor surrounded by existing townships, retail malls, a medical institute, a university campus as well as a golf course.
The land is planned for eco-themed mixed development township with an estimated GDV of RM9.6bil over 15 to 20 years of development period.
Meanwhile, CIMB Research said this acquisition would reduce SP Setia’s net profit for the next few years.
“While this acquisition will raise Setia’s total GDV by 15% to RM80bil and therefore strengthen its long-term earnings growth prospects, we estimate that it could reduce SP Setia’s net profit by about 3% for the next few years by raising its net interest cost.
“We have cut our financial year 2016 to 2018 earnings per share projections by 1% to 20%.
“(This is) to reflect the higher net interest cost associated to this acquisition, as well as the dilution impact arising from a recent dividend reinvestment plan exercise,” it said.
