Investment Highlights
- We maintain HOLD on S P Setia (Setia) with an unchanged fair value (FV) of RM0.64/share based on a 60% discount to our RNAV and a neutral ESG rating of 3 stars (Exhibits 1 & 2).
- Our FV implies a FY24F PE of 9x, 1 standard deviation below its 3-year median.
- On 7 May 2021, Setia entered into a conditional agreement with Scientex’s wholly-owned Scientex Quatari to dispose 8 parcels of freehold land measuring 959.7 acres in Tebrau, Johor Bahru for RM518mil cash.
- However, Setia has terminated the Sale and Purchase Agreement (SPA) yesterday after conditions precedent (CP) under the SPA were not fulfilled.
- The unfulfilled CPs involved the non-approval of the waiver for bumiputra equity imposed by the Economic Planning Unit.
- The outcome of the appeal has not been obtained after the expiry of the extended CP period. Consequently, the SPA lapsed and the parties are released from all further obligations.
- Overall, we are negative on the aborted sale as the selling price of RM12.39 psf was reasonable given its premium of RM37mil or 8% to City Valuers & Consultants’s valuation of RM481mil or RM11.50 psf.
- However, our forecasts and SOP are unchanged as we did not incorporate any gains from this transaction pending completion of the deal.
- The proceeds were initially planned to fund other project developments and pare down Setia’s borrowings.
- For illustration purposes, Setia’s net gearing ratio would have been reduced to 0.58x (from 0.62x as at December 2022) if the land sale had materialised.
- The stock currently trades at a fair FY24F PE of 8x, at parity to its 3-year average.
Source: AmInvest Research - 7 Mar 2023