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Tuesday, January 18, 2011

S P Setia back in the limelight

KUALA LUMPUR: S P Setia Bhd has bounced back strongly after taking a backseat in recent months when mega-property mergers took the spotlight. The property developer has confirmed securing 40 acres of prime land along Jalan Bangsar.

It also announced a fund-raising exercise via a proposed placement of 15% of new shares to be done via book-building that could easily raise RM1.14 billion. The fund raising comes in tandem with a one-for-two bonus issue.

In an announcement confirming a report in The Edge, S P Setia said it had received an approval-in-principle from the Prime Minister’s Department to talk over terms for the proposed development of a new integrated health and research complex for the Ministry of Health (MOH) in Setia Alam.

In return, S P Setia’s 50% subsidiary Sentosa Jitra Sdn Bhd gets a piece of prime land along Jalan Bangsar where the present facilities belonging to the health ministry are located.

“The company said that it had received a letter on Sept 24, 2010 by Unit Kerjasama Awam Swasta (UKAS) of the approval-in-principle granted by the Federal government for Sentosa Jitra to enter into negotiations with UKAS and the MOH over terms for the proposed development of a new integrated health and research complex on a 55.33-acre land in Setia Alam by way of land swap for the government land located along Jalan Bangsar,” the company stated.

In the last two months, S P Setia’s position as the industry leader among property developers was jolted following the mergers between UEM Land and Sunrise Bhd, and the proposed tie-up between Malaysian Resources Corp Bhd (MRCB) and IJM Land Bhd. The MRCB-IJM Land deal did not take off but the UEM Land-Sunrise merger had created a large property company overtaking S P Setia as an industry leader.

However, S P Setia’s president and CEO Tan Sri Liew Kee Sin last month had told analysts and reporters that the developer would bounce back and was looking at aggressively expanding its landbank in the Klang Valley.

This, he appeared to have delivered as the piece of land along Jalan Bangsar is one of the few sizeable parcels remaining in that location.

The proceeds from S P Setia’s fund-raising exercise are partly for the MOH development in Setia Alam that is expected to cost RM600 million to RM700 million. The funds are also to finance its existing projects, general working capital requirements, future expansion plans as well as to defray related expenses.

“The funds to be raised are timely especially for the MOH deal and will help expedite the development of Setia City to complement the presence of the 1NIH Complex,” Liew said in a statement yesterday.

S P Setia’s other development projects are also expected to benefit from the corporate exercise, including its KL Eco City (KLEC) project opposite Mid Valley, and the Fulton Lane project in Melbourne, Australia. The KLEC is a joint venture with City Hall.

S P Setia has plans to redevelop the land in Bangsar into an integrated mixed residential and commercial project where the MOH will have a 20% share of the net profits from the redevelopment under the proposal.

“We are tremendously excited about the project given the site’s excellent location which provides a rare opportunity for the group to further showcase our skills in developing luxury residential and integrated commercial products within the affluent Bangsar and Federal Hill areas,” Liew added.

Analysts are positive on this development. According to CIMB Research, the 40 acres could be worth RM523 million to RM871 million, based on the price of RM300 to RM500 psf for residential bungalow land in Bangsar.

“If the land has a plot ratio of four times or higher with commercial title, it could be worth several times more,” the research house said.

CIMB said that assuming a plot ratio of four to five times and an average selling price of RM1,200 psf, the gross development value of the Bangsar land would amount to RM8 billion to RM10 billion.

Additionally, CIMB expects margins for the project to be higher than KLEC’s as infrastructure requirements are likely to be considerably lower than the RM400 million expected to be spent on KLEC.

CIMB also assumes that S P Setia has a 50% to 60% stake in the project, which is similar to its effective 60% stake in KLEC, the surplus value from the land at a net cost of RM700 million for the 1NIH Complex alone would be around RM550 million or 48 sen per share, boosting the revised net asset value (RNAV) to RM6.21.

The research house kept its target price at RM7.45 but noted that there was a possibility of raising it to around RM8 based on the surplus value of the Bangsar land.

“There could be further upside to the RNAV as the shift of several thousands of ministry staff to Bandar Setia Alam would make S P Setia’s flagship township and the RM5 billion 158-acre Setia City commercial centre even more attractive,” it said.

Potential re-rating catalysts include positive news on the Bangsar land, continued robust sales, newsflow on other landbank and strong earnings growth. S P Setia remains the property sector bellwether and CIMB’s top pick for the sector.

The counter closed unchanged at RM6.70, with its market capitalisation at RM6.81 billion. S P Setia’s share price has risen some 50% since late September, thanks to the impending launch of KLEC.

By The EDGE Malaysia

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