S P Setia Bhd (May 16, RM3.70)
Upgrade to buy at RM3.71 with target price of RM4.21: S P Setia has proposed to acquire a 8.6ha piece of freehold land  on the northeast side of Penang Island. The purchase price is RM185.6 million or about RM200 per sq ft. The pricing of the land is slightly lower than the land cost of two other S P Setia projects in Penang, Brook Residences (RM250 psf) and Setia V Residences (RM237.8 psf). However, Brook Residences is located in the prime residential area of Jesselton Road, while Setia V Residences is a seafront project off Jalan Kelawi, near Gurney Drive. Compared with a few recent major land deals in Penang, the valuation for the land appears to be reasonable.

International beach resorts along Jalan Batu Feringghi are less than 10 minutes away, while George Town is approximately 15 minutes drive. The land is a portion of a 9.6ha tract of first grade land. The remaining portion of about 1ha will be retained by the vendor as it has been sold to various purchasers. We are not concerned with the part of the land sold to third parties as the portion accounts for only a small fraction of the piece of land. We reckon the approval process for the land could be swifter as first grade land is a special title in Penang which does not carry a specific category of land use and does not need to be converted for housing development.

The tract has an undulating landscape, natural waterfall and meandering river, which is ideal for S P Setia's eco-themed development. The land is in close proximity to well-known tourist spots, including Batu Feringghi, Gurney Drive and the Penang forest reserve, which will be a major attraction. S P Setia had planned for a mixed residential development comprising terraced houses and condominiums with total gross development value (GDV) of RM1.1 billion. Apart from targeting Penangites overseas, retirees and Malaysia My Second Home participants, S P Setia will market the development through its representative offices in Singapore, Indonesia, China and Australia.

S P Setia has carved a niche in the Penang property market. From FY08 to FY11, projects in Penang contributed 7% to 9% to total group property sales. The remaining GDV for S P Setia projects in Penang is about RM1 billion and could diminish after some launches in FY12. The new acquisition will replenish its landbank as well as expand its presence in northeastern Penang. — MIDF Research, May 16

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