SP Setia acquired 1,010.5 acres land in Semenyih for RM330.1m cash which is earmarked for a mixed township development with GDV of RM3.5bn. While the land cost at RM7.50psf is relatively cheap, meaningful earnings contribution is only expected from FY14 onwards. RNAV is raised marginally by 17 sen to RM4.07 per share which indicates SP Setia is already fairly valued at current valuation.
News

SP Setia announced last Friday the acquisition of 1,010.5 acres landbank in Semenyih for RM330.1m cash or RM7.50 psf.

The site is situated midway between the towns of Semenyih, Bangi Old Town and Beranang. It is approximately 5 kilometres south of Semenyih; 7 kilometres east of Bangi Old Town; and 2 kilometres north-west of Beranang. It is also located approximately 12 kilometres south of Kajang town and 25 kilometres south of Kuala Lumpur City Centre. The travel time to Kuala Lumpur City Centre is approximately 40 minutes.

S P Setia intends to develop the site into a mixed residential township development project with an estimated gross development value (GDV) of RM3.5bn. The proposed project is expected to tap into strong demand for attractively priced homes by first time owners and other home buyers in the Semenyih-Kajang corridor.

The transaction, which is subject to approval of the Estate land Board, is expected to be completed in 1HFY12.

Comments

Compared to UEM Land’s acquisition of 463.51 acres of land in Semenyih on 6 Dec 2010 at RM13.30 psf, SP Setia’s acquisition appears relatively cheap.

SP Setia will procure the development order (and other relevant building approvals) upon completion of the transaction.

Assuming an 18% net margin, this project will generate net profit of RM630m over an estimated 8-year development period. We expect the project to be launched in FY13 which means earnings contribution will only likely to commence meaningfully from FY14 onwards.

Impact of 17 sen or 4% to existing RNAV of RM3.90 is negligible.

Funding for the land cost is not an issue as SP Setia is in net cash position as of 30 April 2011 following a private placement in March 2011 which raised RM885m. However, after taking into account the land cost for this acquisition, and start-up costs of Fulton Lane and KL Eco City projects, net gearing will rise to 0.3x which is still manageable.

Valuation and recommendation

While we are positive of this acquisition which will increase SP Setia’s remaining GDV of its landbank to RM52bn (effective share is RM43bn), we continue to maintain our hold call as there will not be immediate earnings contribution.

Furthermore, with RNAV estimate of RM4.07, we deem SP Setia is fairly valued at current valuation.