S P Setia’s leadership uncertainty removed

S P Setia Bhd (June 3, RM3.16)

Maintain buy with a target price (TP) of RM3.70: We recently visited Setia Eco Templer, which is a 194-acre (78.51ha) township development in Rawang, Selangor, located about 25km away from Kuala Lumpur City Centre. Recently launched in May, the township was built with a focus on being environmental friendly, and creating a harmonious co-existence between man and nature.

Total gross development value (GDV) of Setia Eco Templer is RM2 billion, and the expected completion period is between eight and 10 years. Phase 1 launch has already achieved a 95% take-up rate. Out of the 234 units available in Phase 1, with a GDV of RM280 million, S P Setia Bhd has successfully sold 222 units of the property worth RM250 million.

Note that Phase 1 consists of 176 units of link houses priced from RM850,000, 52 units of semi-detached houses priced from RM1.7 million and six units of bungalows priced from RM2.8 million.

We gather that there were only 12 units of semi-detached houses available for sale, due to the strong take-up in the past few weeks. We believe that the strong take-up rate seen was due to the special offer of S P Setia’s 10:90 programme, in which buyers only need to pay a 10% deposit. For the remaining 90%, buyers will have up to three years to secure the loan facility, as they are only required to do so after taking the vacant possession of the property.

We maintain our financial year ending Dec 31, 2016 (FY16) sales target of RM4 billion. We have included sales of Setia Eco Templer into our FY16 sales estimate previously. We also maintain our FY16 and FY17 core net income estimates at RM714 million and RM788 million respectively.

We maintain “buy” with a TP of RM3.70, based on a 10% discount to revalued net asset valuation. We like S P Setia due to the recent confirmation of Datuk Khor Chap Jen as chief executive officer — which has removed the company’s leadership uncertainty, its high dividend yield of 5.8% and strong balance sheet, with a net gearing of 0.28 times. — MIDF Research, June 3

Interested in property investments in Rawang after reading this article? Click here to check out the properties there.

This article first appeared in The Edge Financial Daily, on June 6, 2016. Subscribe to The Edge Financial Daily here.