Analysts hold S P Setia's earnings forecast pending Singapore project launch

KUALA LUMPUR (April 19): Analysts are holding their earnings forecast for S P Setia Bhd after it won the tender for a plot of prime land in Singapore, amid concern over the group’s valuation due to the high cost of the land.
 
CIMB Research analyst Saw Xiao Jun said the research house is neutral on acquisition of the 4.6-acre leasehold land on Toh Tuck Road, believing that the high price leaves little risk-adjusted upside to S P Setia’s valuation.
 
The property developer announced yesterday that its wholly-owned unit, S P Setia International (S) Pte Ltd, beat 24 other bidders for the land which it plans to develop into a five-storey luxury condominium project with a S$457 million gross development value (GDV). SP Setia is reported to have made the highest bid of S$265 million (RM847.6 million) or S$939 per sq ft (psf) of gross floor area.
 
Saw said CIMB would turn more positive on the acquisition, if S P Setia is able to raise the GDV of the project and achieve a decent take-up rate for it at the same time.
 
“The key upside/downside risks to our “hold” call are stronger/weaker-than expected sales performance,” he said in a note today.
 
Saw said the development on the land could set a new price benchmark in its locality and that its average selling price would exceed S$2,000 psf, higher than the S$800-S$1,800 psf price range of comparable properties in the same locality, based on the asking prices quoted on property listing portals.
 
The analyst said since SP Setia has yet to finalise the development plan, CIMB is keeping its earnings forecasts unchanged, pending more details about the project.
 
“However, contribution to earnings should start in 2019, as the company targets to launch the project in 2018. Its low net-debt ratio of 16% allows plenty of room for the company to raise gearing,” Saw added.
 
Meanwhile, Public Investment Bank Bhd, which maintained its “outperform” call on the stock, said S P Setia would be able to sell the project even under the current difficult trading environment in Singapore, based on the success of its two other projects in Singapore.
 
“Earnings estimates are kept unchanged for now, as the launch is expected only in 2018. We maintain ‘outperform’ and RM4.15 target price, pegged at about 15% discount to revalued net asset value,” it said.
 
S P Setia shares were down five sen or 1.36% at RM3.64 in early afternoon trading today, with 1.33 million shares transacted, giving it a market capitalisation of RM10.39 billion. — theedgemarkets.com

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