S P Setia land disposal is at fair price, helps to lower group’s net debt
PETALING JAYA: Analysts are generally positive about S P Setia Bhd’s disposal of 959.7-acre in Tebrau, Johor for RM564mil cash.

Kenanga Research said in a report it believed the pricing is fair as it was in line with the transacted market price within the area.

The proceeds will reduce S P Setia’s net debt and gearing of RM7.1bil, and 0.49 times as at end-March 2024 to RM6.5bil and 0.45 times, respectively, it added.

Kenanga Research said the Tebrau land disposal was also in line with the property group’s strategy to monetise selected land parcels to de-gear its balance sheet.

“While we consider the transaction as a one-off item, we raise our financial year 2024 (FY24)-FY25 earnings forecasts by 0.7% and 0.4%, respectively, to reflect interest savings from the proceeds,” it said.

Kenanga Research has also raised the stock’s target price (TP) by 6% to 85 sen from 80 sen previously, having reflected gains from the disposal.

However, the research house remained cautious on S P Setia due to its significant exposure to the high-end landed and high-rise residential segments, which are not highly sought after by buyers at present.

In addition, the group has high gearing and hence debt servicing obligations amid a high interest environment and losses at its joint-venture projects.

Kenanga Research said the risks to its call include strong recovery in the property sector, changes in mortgage rates boosting affordability, construction costs stabilising or declining and the risks associated with overseas operations.

Separately, S P Setia said it has commenced pre-initial public offering preparatory work for a real estate investment trust to unlock the value of its property investment portfolio.

“This, we believe, comprises, among others, Setia City Mall, Setia Convention Centre and Amari KL Hotel,” noted Kenanga Research.

Meanwhile, MIDF Research in a note to clients said it estimated the group’s net gearing to decline to 0.45 times from 0.49 times in the first quarter of FY24 following the latest land disposal.

It said S P Setia remains on active land monetisation, with another ongoing land disposal in Johor.

Note that the group signed a sale and purchase agreement with Maxim Pelangi Sdn Bhd in March 2024 for the disposal of 6.5 acres in Johor for a consideration of RM167mil.

The research said it was maintaining its earnings forecasts for FY24, FY25 and FY26, as the gain on the land disposal is excluded from its core net income forecast.

MIDF Research, which has a “buy” call on the stock, has kept its TP unchanged at RM1.68.

“The valuation of S P Setia remains attractive, trading at 55% discount to the latest net tangible asset per share of RM3.30,” it added.

Besides, the potential listing of S P Setia’s investment properties under REIT will unlock value of its investment properties.

S P Setia saw its net profit rise to RM77.33mil in 1Q24 from RM55.45mil in the previous corresponding period, while revenue grew to RM1.48bil from RM967.67mil a year earlier.

The group is targeting sales of RM4.4bil for this year. Its 1Q24 property sales amounted to RM1.42bil (compared with RM1.21bil in 4Q23), of which land sales accounted for RM731mil.

During the quarter, S P Setia sold 930 acres of land in Taman Pelangi Indah 2 in Johor for RM564mil and 6.5 acres in Taman Pelangi, Johor, for RM167mil.
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Analysts are generally positive about S P Setia Bhd’s disposal of 959.7-acre in Tebrau, Johor for RM564mil cash.