The Borneo Post (Sabah)
Analysts positive on SP Setia’s acquisition of Setia Federal Hill
KUALA LUMPUR: SP Setia Bhd’s (SP Setia) unexpected acquisition of Setia Federal Hill has been viewed positively by analysts as the acquired company will potentially increase future earnings of SP Setia.
According to SP Setia, the company entered into a sale and purchase agreement (SPA) with Mekar Gemilang Sdn Bhd (Mekar) to acquire the remaining 50 per cent equity interest in Setia Federal Hill for a total cash consideration of RM431.891 million.
Kenanga Investment Bank Bhd’s research arm (Kenanga Research) viewed this price tag as attractive while the company’s net gearing is only expected inch up to 0.28folds.
It noted that Setia Federal Hill’s new estimated gross development value (GDV) of RM20.2 billion is higher than what was quoted in SP Setia’s latest list of remaining GDV (previously RM14.3 billion).
“The price-tag of the remaining 50 per cent stake in Setia Federal Hill is attractive considering that the market value of the land is RM1,050 per square feet (sqf) and the implied land cost-to-GDV ratio of four per cent is rare nowadays.
“The project will be funded by the proceeds from the iRCPSA which was completed back in December 2016; expect FY18 net gearing to increase from 0.24 to 0.28-folds, which is still at healthy level,” the research team said.
“We were surprised by the acquisition, considering that the group had only recently completed its acquisition of I&P and did not expect any sizeable acquisitions to happen so soon; but we think it does make sense for SP Setia since they already owns 50 per cent of the project and has the balance sheet headroom.
“Overall, we are medium-tolonger term positive on the acqui- sition given the attractive price tag to own 100 per cent of a rare piece of prime land in Bangsar though also not expecting any near-term earnings impact.
“We expect the project to be launched from FY20 onwards,” Kenanga Research opined.
Meanwhile, MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) viewed the stake acquisition positively as it will potentially increase future earnings of SP Setia.
It noted that Setia Federal Hill is the registered owner of 51.57 acres of land in Bangsar. Setia Federal Hill is also a joint venture company which was established to undertake development of the land.
It added, the land in Bangsar is planned for an integrated development project (estimated GDV of RM20.19 billion) comprises residential and commercial components with a development period of 15 years.
“With 100 per cent equity stake in Setia Federal Hill, future earnings contribution from the planned project to SP Setia is expected to be higher,” it opined.
It further pointed out that funding the acquisition should not be an issue to SP Setia as the company has a cash pile of RM5.6 billion as at end of FY17.
“We maintain our earnings forecast as development on the land is expected to start only in 2019. The purchase consideration of RM431.9 million is expected to be funded via combination of cash and bank borrowings,” it added.
All in MIDF Research maintained its ‘buy’ call on the stock while Kenanga Research pegged an ‘outperform’ rating on SP Setia.
The price-tag of the remaining 50 per cent stake in Setia Federal Hill is attractive considering that the market value of the land is RM1,050 per square feet (sqf) and the implied land cost-to-GDV ratio of four per cent is rare nowadays. Kenanga Research