KENANGA: SP Setia - BUY - 18 Mar 2008

SP Setia - No longer going to Cyberjaya (Company Update)



Price: RM3.44

Target Price: RM5.62

Recommendation: BUY



· Ceased Cyberjaya project. Yesterday, SP Setia (SP) announced that it has terminated its land acquisition agreement to purchase 156.4ac land in Cyberjaya, worth RM190.6m (RM27.98 psf), from Setia Haruman Sdn Bhd and Cyberview Sdn Bhd. The site was earmarked for the RM1.2b GDV mid to high end mixed development named Setia Eco Villa (SEV).

· Terminated agreement due to the selling parties' inability to fulfil the SPA conditions, whereby SP will purchase the land for a discounted RM24.85psf if and only if main access roads are provided. The access roads could not be built as it would cut through a government protocol road, while neither party could agree on a suitable alternative.

· We are relieved with the termination, as it results in a 1% and 3% dampener in our FY08E and FY09E EPS to 29.56sen and 36.97sen, respectively. We were cautious about the project because the Cyberjaya-Putrajaya area could face great difficulty in attracting a sizeable population to support a township like SEV. Now, SP can devote more energy and resources towards their high margin and commercial projects, like Setia Sky Residences and Setia Nexus.

· Downward revision in FY08E and FY09E net profit by 3% and 15% to RM266.9m and RM298.1m, respectively, to account for slower sales from township products. Apart from absence of SEV, management feels that earnings may soften as a result of brewing uncertainties from this year's surprising general election results. SP feels that home buyer's sentiment will be cautious as many will wait to observe the governments' reaction.

· Lowering fair value to RM5.62 from RM5.78 as we remove the SEV land from our fully diluted sum of parts RNAV. This is a fantastic opportunity to accumulate SP given its recent sell down. FY08E and FY09E PER are fair at 12x and 11x, respectively. Maintain BUY.







KENANGA INVESTMENT BANK BERHAD (15678-H)