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Saturday, June 27, 2009

PNB not likely to take SP Setia private

PETALING JAYA: There is a possibility for Permodalan Nasional Bhd (PNB) to raise its 32.9% stake in SP Setia Bhd to the takeover trigger threshold of 33%, but industry observers believe the investment institution is unlikely to take the property company private or meddle in its affairs.

SP Setia is regarded as the industry trendsetter under the leadership of Tan Sri Liew Kee Sin

“It will be a very costly exercise for PNB to buy the remaining SP Setia shares that it does not already own. At yesterday’s market closing price of RM4.06 per share, this will cost about RM2.8bil.

“But most importantly is whether PNB can further add value to SP Setia if it is being taken private at current valuations which is expensive. It is currently trading at 19 times of FY2009 earnings estimate,” ECM Libra property analyst Bernard Ching told StarBizWeek.

PNB’s accumulation of SP Setia shares since March last year has kept the shares at a much higher valuation than the industry’s average. The pace of its share buying in the company picked up when the global financial crisis started last June that prompted some of the foreign funds to liquidate their positions.

Ching believes that the recent appointment of two nominee directors of PNB is nothing more than a check and balance to safeguard their significant investment in SP Setia rather than to exert influence over the management of Malaysia’s biggest property developer by market capitalisation.

SP Setia president and chief executive officer Tan Sri Liew Kee Sin owns 12% in the company while the Employees Provident Fund and US-based Capital Group also have 12% each. Other foreign shareholders hold another 14%.

The company’s current chairman, Tan Sri Abdul Rashid Abdul Manaf, had assumed the chairmanship since Jan 15, 1996.

Referring to concerns expressed by the investment community that PNB had taken three property companies – Island & Peninsular Bhd, Petaling Garden Bhd and Pelangi Bhd – private between 2005 and 2007, Ching said the situation was different for those companies.

“These companies do not attract the kind of investors’ following as SP Setia and they were under-valued. Furthermore, PNB only spent about RM1.7bil in total following the mandatory general offers to take them private,” he said.

So, is there a likelihood for PNB after its takeover of SP Setia to merge it with the other three property companies?

“This is very unlikely as it will severely dilute SP Setia’s value. The management style of Liew and the other PNB-appointed chiefs may be very different and a significant amount of time and effort may be required to align these differences,” Ching pointed out.

He said a more likely scenario would be joint development of PNB’s vast land bank under SP Setia’s well-established brandname.

By doing so, PNB can leverage on SP Setia’s vast expertise in turning around large greenfield parcels into townships, while SP Setia can avoid heavy holding cost from new land acquisitions.

HwangDBS Vickers Research senior property analyst Yee Mei Hui said since its transfer to the Main Board in 1996, SP Setia had quickly built up its reputation as a blue-chip property stock and darling of the investment community.

The company’s good dividend payout record at the rate of about 60% of net earnings since 2005, and its capital appreciation over the years have certainly contributed to its stature.

With its track record as one of the top industry performers in terms of sustainable earnings and sales, she said SP Setia was well known for its innovative marketing expertise and product offerings.

Led by its charismatic chief, Liew, 51, SP Setia is highly regarded for being the industry trendsetter in terms of product design, good price premium for its properties and high quality. Its capability in product innovation and designing has won the company many industry awards, both on the local and international stage.

SP Setia’s 4,000 acres of land bank in the Klang Valley, Penang and Johor have all the infrastructures in place and are all paid for. They will last the company at least another 10 to 15 years.

At the end of the day, if PNB’s investment strategy in SP Setia is for long-term value enhancement, then the current Liew-led management will continue to be the faces of SP Setia for many more years to come. PNB could not be reached for comment.

By The Star (by Angie Ng)

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