HLG: 26 March 2008 SP Setia - Still expensive, despite sell-down

SP Setia Bhd Group HOLD



Price target RM3.54



Share price at 25 Mar RM3.62



Investment summary


We initiate coverage on SP Setia with a HOLD: (1) 14x FY08E PE is 30% premium to peers, fully reflecting its property market leadership. (2) High foreign shareholding of 40% remains a major market risk. (3) We think there are better growth prospects elsewhere in our property universe. Over the last 4 years, sales has maxed-out at RM1bn pa, translating into poor 6-7% yoy EPS growth. Management aims to reverse this by launching RM1.8bn in new township projects in non-traditional areas (eg. Penang, Vietnam), but we are cautious: we maintain our view that the current inflationary environment could crimp demand for mass-market housing. We are positive on Malaysia’s property sector, as share prices have corrected to historical troughs, despite earnings growth visibility. We like high-end developers, as we anticipate continued robust demand from foreign buyers.



Prefer SunCity/Mah Sing

Despite its share price falling –30% YTD, SP Setia is still more expensive and has lower growth than our property picks Sun City/MahSing. We think SP Setia has reached a size which makes growth difficult in Malaysia’s small and increasingly competitive property market: EPS has grown by just 6-7% yoy in the last 4 yrs.