Analysts positive on SP Setia’s land disposal in Johor
SP Setia Bhd’s (SP Setia) land disposal in Johor has garnered positive views from analysts as it allows the group to unlock the value of its landbank.
To recap from the group’s press release, Pelangi Sdn Bhd, a wholly-owned subsidiary of SP Setia and Scientex Quatari Sdn Bhd, the property arm and wholly-owned subsidiary of Scientex Bhd, recently entered into a conditional sale and purchase agreement for the sale of eight parcels of land located in Johor Bahru, Johor for RM518.1 million.
“The land disposal is positive to SP Setia as it allows SP Setia to unlock the value of its landbank,” the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) said.
“The sale consideration of RM518.1 million is above the market value of the land of RM480 million.
“The land is located along the Senai-Desaru Expressway and situated 28 kilometres (km) north of Johor Bahru city centre.
“The existing use of the land is palm oil estate. SP Setia intends to use the sale proceed into other project development and to pare down its borrowings.”
MIDF Research noted that net gearing of SP Setia has been inching up to 0.66-fold in financial year 2020 (FY20) from 0.57-fold in FY19.
Meanwhile, the research arm of Public Investment Bank Bhd (PublicInvest Research) estimated that SP Setia could generate circa RM290 million in profits from the land sale with completion date timeframe from 2022 to 2024 subject to the fulfillment of certain authorities’ approvals.
“The selling price is fair, in our view, with current market value of the land of RM480.8 million,” PublicInvest Research opined.
“We are positive on the asset monestisation exercise as it would right-size the group’s huge land bank that currently stands at more than 8,500 acres of undeveloped land with estimated gross development value (GDV) in excess of RM136 billion which could take more than 25 years to develop.”
The research arm also believed that this asset sale is part of the nine tracts of land measuring 1,295 acres with estimated market value of RM1.96 billion for outright sale and/or for working with other parties on joint-venture basis.
As for the research arm of Kenanga Investment Bank Bhd (Kenanga Research), it was not surprised by the announcement as the group had previously highlighted that they were not discounting the possibility of land sales.
“We believe the disposal price is decent at RM12-13 per square foot (psf) given that most transactions of agricultural land within the Johor region range from RM8.50 psf to RM15 psf,” Kenanga Research said.
“We are positive on this disposal as impact to earnings is significant to financial year 2022 (FY22) and beyond.
“We like the fact that SP Setia is monetising land banks in Johor which has been a challenging market, freeing up cash for its other development projects.”