SP Setia Bhd’s cancellation of the land sale to Scientex Bhd in Johor is suprising and will slow down the group’s plan to de-gear but it could be a blessing in disguise, according to Maybank Investment Bank (Maybank IB).
The research house said given the improving Johor property market outlook, it could allow SP Setia to price the land higher in the future.
“We revise our FY24-25 earnings forecasts downward by 40% and 6% respectively to factor in the cancellation of the land sale (and RM320 million gain).
“In our forecasts, we have already incorporated land sales to Mah Sing Group Bhd (MGSB MK, CP: MYR0.87, Not Rated) in Semenyih (500 acres; RM392 millionvalue) and KSL Holdings Bhd (KSL MK, CP: MYR1.25, Not Rated) in Setia Alam (18 acres; RM228 million).
“We understand that both buyers have managed to secure approvals from economic planning unit (EPU),” it said.
Its new TP is RM1.18, less 2 sen than the previous TP, on unchanged 0.4x FY24E PBV and it also maintains its BUY call.
Maybank IB said it is surprised with the cancellation as together with the land sales Semenyih and Setia Alam, this land disposal to Scientex was supposed to lower the group’s net gearing to 0.48x (SP Setia’s guidance), from 0.53x in Sept-end 2023.
The reason cited behind the cancellation was the non-fulfillment of condition precedent
“However, we are not overly bearish on this latest development. In our view, it could be a blessing in disguise given the rising demand for
Johor properties.
“It is worth nothing that the land disposal agreement was signed before the announcement of special economic and financial zones in Iskandar Malaysia sometime in mid-July to Aug 2023.”
Maybank IB said there are several risks factors to its earning estimates and TP including slower-than-expected property sales and longer-than-expected downturn in the property sector, delay in obtaining the necessary approvals for its projects and slower progress billings in construction works.
