Maybank IB after it met the management of SP Setia came out feeling upbeat on the group’s medium-term outlook. FY24E net profit could more than double YoY mainly driven by land sale. In addition to reducing its debt level (and finance costs), the land sale proceeds would allow SP Setia to explore landbanking opportunities. Elsewhere, SPSB aims to unlock its investment properties potential via a REIT. Maybank IB raised the FY24-26 earnings forecasts by 1- 55% and TP to MYR1.66 (+38sen) on a higher 0.5x FY24E PBV peg (previously 0.4x) on improving earnings and balance sheet outlook
The house is of view earnings could be more than doubled in FY24 SPSB is in the advance stage of negotiation for the sale of its 960-acre land in Johor and could seal the deal as soon as in 2Q24. The selling price is likely to exceed the earlier proposed purchase price of MYR13psf by Scientex, given rising demand for Johor properties. This could result in a net land sale gain of >MYR320m. 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).
REIT underway?
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.
Earnings adjustments
The scenario analysis on the impact of potential land sale in Johor under different selling price assumptions result in a net land sale gain of MYR352m-479m. Maybank IB has raised its FY24/25/26 earnings forecasts by 55.4%/ 19.2%/1.4% to factor in the Johor land sale assuming MYR14psf selling price. The house said it continues to like SPSB for its undemanding valuation. Catalysts include: land sale (in FY24), REIT-ing of SPSB’s investment properties (FY25-26) and potential upward revision in BPS mall pricing (FY27).
