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Friday, July 6, 2012

Kenanga Research maintains Market Perform on SP Setia

KUALA LUMPUR: Kenanga Investment Research is maintaining its Market Perform on SP Setia with a target price of RM4.05.

It said on Friday the target price was based on a 21% discount to its FD sum of parts RNAV of RM5.11 (excluding Battersea Power Station).

SP Setia had on Thursday entered into a contract for the proposed acquisition of Battersea Power Station site in London for 400mil pounds (RM1.97bil), post-28 days of the due diligence period.

Under the agreement, SP Setia, Sime Darby and the EPF's unit KWASA Global (Jersey) Ltd (KWASAJ) has proposed to set up a JV Co on equity stakes of 40:40:20.

Kenanga Research said the project gross development value (GDV) of 8bil pounds (RM39.4bil). Accounting for equity stake, this will increase SP Setia's total GDV by 30%.

“However, further details are still lacking. Details of project margins, initial size of first launch, etc. are still unavailable. The debt-equity funding structure has also not been finalised yet.has also not been finalised yet,” it said.

Kenanga Research said SP Setia's portion of land payment and the two years' development cost amounts to 240mil pounds (RM1.18bil).

“Assuming the typical 80:20 debt-equity ratio, SP Setia's net gearing will increase to 0.64 times from 2Q12's 0.32 times, which will be a record high level since 2007 and above our comfort level of 0.50 times.

“Although its strong billings can pare down the debt quickly, we do note that there are other capital intensive projects in the pipeline (KL Eco City, MoH land, Qinzhou Industrial Park@China),” said the research house.

By The Star

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