SP Setia (SPSB), in a surprise turn, announced that the proposed land disposal to the Scientex JV has been aborted again due to “non-fulfilment of conditions precedent within the extended completion period”. To recap, the 960-acre land sale to Scientex was first mooted back in 2021, but was called off after it failed to obtain a waiver of the Bumiputera equity condition imposed by the Economic Planning Unit (EPU). SP Setia and Scientex JV then revisited the deal in July 2023 with higher price of RM547.65m. However, details behind the latest rejection by EPU are still light at this juncture. All told, we are disappointed as the land deal, we believe, could have helped bump the Group’s earnings while rightsizing its huge landbank and lighten its debt burden. As such, we cut our FY24 earnings by 46% with the latest development. Pending more details from management, we turn more cautious and downgrade SP Setia from Outperform to Neutral, with TP of RM1.00 (from RM1.20) on higher discount of c.65% from c.60% previously (vis-à-vis sector average of ~0.5x to NTA).

• Land deal aborted again. To recap, the land was earmarked earlier to be developed as “Taman Pelangi Indah II” with estimated gross development value (GDV) of about RM8bn. SP Setia had announced the proposed disposal of the same land to Scientex Quatari back in May 2021 for RM518.15m but the agreement lapsed due to non-fulfilment of a condition precedent (mainly Bumiputera equity condition), specifically in relation to the approval from the Economic Planning Unit (EPU). Then, the two parties revisited the deal again in the middle of last year with a new joint-venture structure to satisfy the condition by EPU, and also a higher price tag of RM547.65m. The deal, we understand, was estimated to increase its net assets and cash position by RM320.3m and RM441.4m respectively.

• Other land deals. Despite the latest setback, the Group still has other deals announced which, among others, include the sale of 17.99 acres of land in Setia City, Selangor to KSL Bestari Sdn Bhd for RM228.8m and 500 acres to Mah Sing Group Berhad (for RM392m). It has plans to offload more noncore assets and potentially monetize these assets (with estimated value of RM5bn) via REIT listing or outright disposal. It still aims to further decrease its current net gearing of 0.53x to 0.5x by the end of FY23. This will be achieved primarily through repatriating funds from overseas projects, monetising non-strategic land, and clearing unsold inventory.

Source: PublicInvest Research - 8 Jan 2024