SP Setia
Six projects in Johor
• Acquisition of 265.7 acres land in Johor
Hot on the heels of securing the 40-acre land in Bangsar two weeks ago, SP Setia announced last Friday that it is expanding its landbank in Johor by acquiring 262.5 acres (net of 3.2 acres reserved for water pipeline) of freehold land in the Mukim of Tebrau for RM125.8m cash or RM11 psf. With this acquisition, SP Setia will have 6 projects in Johor now.

• Reasonable land cost
We believe the acquisition price of RM11 psf is reasonable after considering SP Setia’s acquisition of Setia Eco Kaskadia for RM15 psf in Sep 2010. The latter is adjacent to the matured Setia Indah township which is located approximately 10 minutes from the said land. Other established projects in the vicinity include Taman Seri Austin, Bandar Dato Onn, Adda Heights, Kempas Indah and Setia Tropika. The said land is accessible from Jalan Seelong as well as from Bandar Dato Onn.

• Estimated GDV of RM700m
Management did not reveal the gross development value (GDV) and development timeline of the said land as it is still too preliminary. It is also subject to several conditions precedent which include

(1) procurement of planning approval and revised layout plans, and
(2) consent of developers

to adjacent land for construction of access roads and bridges. Nevertheless, we estimate that the said land, which will be developed as a mixed township, will generate at least RM700m in GDV which is similar to Setia Eco Gardens on a GDV/acre basis. We also believe that the project will be launched in FY12 at the earliest while earnings contribution should only commence from FY13.

• Maintain SELL
We are not imputing any earnings from this new project into our model yet until there is more clarity on development timeline. Nevertheless, we tweaked our earnings following the release of FY10 annual report. Despite the acquisition being positive, we believe it has been priced in given recent share price performance. Current valuation at FY11 P/E of 26.4x is already above 2x standard deviation and 15% above revised RNAV of RM5.56 (previously RM5.50). As such, we maintain our sell call and target price of RM6.00 based on FY12 20x P/E.