Analysts positive on SP Setia’s acquisition of I&P Group

PETALING JAYA: SP Setia Bhd’s acquisition of I&P Group Sdn Bhd is realisable net asset value (RNAV) accretive based on the estimated market value of its landbank of RM6.15 billion against the purchase price of RM3.65 billion.

“After factoring in the increase in share base, RNAV per share is expected to be boosted by 2.5% to RM4.59,” said MIDF Research in its report last Friday.

It said the corporate exercises would also speed up SP Setia’s plan to be an FBM KLCI member possibly in 2018, which is faster than its original assumption of 2020.

Last week, SP Setia signed a conditional share purchase agreement to acquire I&P Group for RM3.65 billion, which is within the RM3.5 billion to RM3.75 billion expected range.

Post acquisition, I&P Group will become a wholly-owned subsidiary of SP Setia and boost SP Setia’s total landbank by 83% to 9,417 acres, making the enlarged group the third largest developer in terms of landbank.

“There is great synergy for the acquisition is SP Setia already has property development projects in these areas,” said MIDF Research.

The group also announced a proposed renounceable rights issue of new shares to raise gross proceeds of up to RM1.2 billion, a renounceable rights issue of a new Class B Islamic redeemable convertible preference shares (RCPS-i B) to raise gross proceeds of up to RM1.2 billion and a private placement of new shares to raise up to RM1.2 billion.

MIDF Research increased SP Setia’s FY18 core net profit by 22% to RM919 million but a 5.5% dilution on FY18 earnings per share (EPS) is expected due to the increase in share base. The core net profit and EPS for FY17 are maintained.

It maintained its “buy” call on the stock with a higher target price of RM4.13 from RM4.03 previously, after imputing in the estimated market price of I&P Group’s land and the higher share base resulting from the corporate exercises.

“We continue to like SP Setia due to its plan to achieve FBM KLCI status is now fast tracked to 2018, attractive price for the I&P Group deal and good dividend yield of 5.1%,” it said.

Meanwhile, Affin Hwang Capital said the acquisition is at a discount to market value while the equity issuance is sufficient to finance the acquisition.

Based on I&P Group’s net profit of RM168 million in FY16, the purchase consideration translates to historical price-to-earnings ratio of 21.7 times.