S P Setia Bhd
Buy. Target price: RM1.66
SPSB is in the advance stage of negotiation for the sale of its 960acre land in Johor and could seal the deal as soon as in Q2’24. The selling price is likely to exceed the earlier proposed purchase price of RM13psf by Scientex, given rising demand for Johor properties. This could result in a net land sale gain of >RM320 million. Additionally, SPSB is in advance negotiation with potential JV partners for a 16-acre commercial land in Setia Alam and its 307-acre industrial land in Tanjung Kupang; this could also result in realisation of land sale proceeds (depending on JV structure).
SPSB is looking to de-gear and unlock the potential of its investment properties through a REIT. It can continue owning these assets by taking a stake in the REIT and would enjoy dividend income. The REIT can also serve as a vehicle for future injection of SPSB’s mature assets, enabling capital recycling. The assets going into the REIT could comprise a retail mall, hotels, schools, as well as a convention centre.
Our scenario analysis on the impact of potential land sale in Johor under different selling price assumptions result in a net land sale gain of RM352-479 million. We raise our FY24/25/26 earnings forecasts by 55.4%/19.2%/1.4% to factor in the Johor land sale assuming RM14psf selling price. We continue to like SPSB for its undemanding valuation. Catalysts include: i) land sale (in FY24), ii) REIT-ing of SPSB’s investment properties (FY25-26) and iii) potential upward revision in BPS mall pricing (FY27).
We raise our TP to RM1.66 (+38sen) on a higher 0.5x FY24E PBV peg (previously 0.4x) on improving earnings and balance sheet outlook. BUY.