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Saturday, July 9, 2011

SP Setia in urban renewal projects

SP Setia Bhd is riding high on the strong property market, given its vast landbank in high-growth property markets in the Klang Valley, Penang and Johor, and being a frontrunner for government land redevelopment projects.

The property group has more than 3,500 acres of undeveloped land that will last it for the next 10 years.

Three major projects planned for launch this year are the KL Eco City, which is located opposite the MidValley; Setia City in Setia Alam, Shah Alam; and Fulton Lane in Melbourne. They have a combined gross development value (GDV) of RM12.5bil.

With Permodalan Nasional Bhd as its major shareholder holding a 32.9% stake and its expertise in both niche and township developments, SP Setia is in the forefront of government land redevelopment projects.

SP Setia has been given the right to develop 40.22 acres of prime land in Bangsar in return for a new integrated health and research complex for the Health Ministry.

The proposed complex, to be known as the 1National Institute of Health (1NIH) Complex, is to be developed on 55.33 acres owned by SP Setia's wholly-owned unit, Bandar Setia Alam Sdn Bhd, in Setia Alam, Selangor.

The complex will house the various national health institutes and relevant supporting offices and research centres under the ministry's purview which are currently situated on 40.22 acres along Jalan Bangsar and other parts of Kuala Lumpur. In exchange, SP Setia will get the government land which it will redevelop into an integrated mixed residential and commercial project. It will provide the Health Ministry and the Government with a 20% share of the net profits from the redevelopment.

Based on a conservative estimated plot ratio of five times and an efficiency factor of 70%, the net saleable area is about 6.1 million sq ft, and assuming an average selling price of RM1,000 per sq ft, the project's GDV will be about RM6.1bil, according to AmResearch in a note. “Compared to status quo, this land swap is accretive because the Bangsar site has high development potential and ready end-user demand. And, the relocation of the new research complex would accelerate the maturity of Setia City, the commercial precinct in Setia Alam,” the report says.

But it says the deal falls short of consensus expectations, as SP Setia will only have a 50% stake, and the joint venture company will also have to distribute 20% of its profits to the Health Ministry.

Given its established track record in township development, SP Setia can look forward to partaking in the development of the 3,300 acre-Rubber Research Institute land in Sungei Buloh. SP Setia has been invited by the master developer, the Employees Provident Fund's unit, Kwasa Land Sdn Bhd, to submit its input for the development of the RRI land into a mixed property development with focus on affordable housing. The RRI land development, which is estimated at RM10bil, is earmarked to be the new hub of the Klang Valley.

Another project on SP Setia's plate is the urban renewal project for Cheras and Bandar Tun Razak, valued at RM2.8bil.

It has recently been picked for the redevelopment of the ageing Seri Johor, Seri Pulau Pinang and Seri Melaka low-cost apartments and the Taman Ikan Emas low-cost homes in Bandar Tun Razak, Cheras.

The project is part of the Government's urban renewal programme to inject life into decaying and ageing townwhips and slum areas in the federal capital.

The project undertaken by the Federal Territories and Urban Wellbeing Ministry and City Hall will see many old low-cost housing projects in the city being redeveloped to provide the urban poor better living conditions.

SP Setia can look forward to raking in record sales of RM3bil for the current financial year ending Oct 31, given maiden contributions from the prolific KL Eco City.

A recent note by Hwang DBS Vickers Research says SP Setia will be one of the biggest beneficiaries of the mass rapid transit project with 25% of revised net asset value (RNAV), like the KL Eco-City and Jalan Bangsar (near KL Sentral), exposed to potential interchanges.

SP Setia has been in the forefront in landbanking with four acquisitions worth RM15bil in GDV year-to-date. There could be more landbanking on the cards given its strong balance sheet.

For the second quarter ended April 30, sales hit an all-time high of RM671mil, while cumulative six-months sales amounted to RM1.41bil.

SP Setia said the result was the strongest ever, overtaking the previous highs achieved in the 2Q of financial year ended Oct 31, 2010, and six-months FY09 by 12% and 17% respectively.

Net profit for the first-half of FY11 rose 72.53% to RM154.26mil from RM89.41mil in the previous corresponding period.

Among the projects that contributed to the sales included Setia Alam and Setia Eco Park in Shah Alam, SetiaWalk in Pusat Bandar Puchong, Setia Sky Residences in Jalan Tun Razak, Bukit Indah, Setia Indah, Setia Tropika and Setia Eco Gardens in Johor Baru, Setia Pearl Island and Setia Vista in Penang.

SP Setia president and chief executive officer Tan Sri Liew Kee Sin is confident the group will meet its FY11 sales target of RM3bil based on the strong sales momentum for existing projects and the upcoming KL Eco City project in Abdullah Hukum. It is obtaining the necessary approvals in preparation for the launch of its recently secured landbank that include a 268-acre land in Cyberjaya and another two parcels measuring 259 acres and 262 acres respectively in the fast-growing Tebrau Corridor, Johor.

By The Star

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