SP Setia Bhd (Sept 10, RM3.54)
(Sept 10, RM3.54)
Trading buy at RM4.30: We make no changes to our earnings forecasts for now, but we note a potential 6% to 12% earnings per share (EPS) dilution from the upcoming 15% private placement.
We maintain “trading buy” and target basis of parity to realisable net asset value (RNAV). Potential RNAV dilution from the placement is around 3%. The stock is not an “outperform” due to the sector’s sensitivity to election risks.
On Sept 4, a consortium comprising S P Setia, Sime Darby Bhd and the Employees Provident Fund completed the acquisition of the 39-acre Battersea Power Station land for £400 million (RM1.98 billion) or £235 psf. We were invited for a visit to the site and its surroundings and attended a briefing on future plans for the project on Sept 4 and 5.
The CEOs and senior management from both S P Setia and its partner Sime Darby were in London to speak to the press and the investment community. We came away from the visit feeling more convinced about Battersea’s potential.
In our visits to the surroundings of the iconic Battersea Power Station and the Nine Elms area, we noted that projects in less strategic and prominent areas were already commanding prices of around £1,000 to £1,200 psf for river-front residential property.
We believe that by pricing competitively at levels similar to its peers, the Battersea project will be off to a strong start. Battersea Power Station is one of only two projects in Nine Elms with direct river frontage.
It is located right next door to the 200-acre Battersea Park. Importantly, it has a high commercial component and a future Tube station as part of the Northern Line Extension.
The impact of the Battersea Power Station project on S P Setia is significant. Total gross development value of the group doubles from RM55 billion to just over RM100 billion.
RNAV and target price could be boosted by 21% to 39%, but we have chosen to be conservative and to value the land at the acquisition cost for now. In terms of earnings, contribution will only flow through from financial year 2016/17 as S P Setia will employ the completion method of accounting for profit, assuming the project is launched in FY13. — CIMB Research, Sept 8
This article is appeared in The Edge Financial Daily on 11 September, 2012.