SP Setia - Aborts Cyberjaya land deal

S P Setia (SPSB MK, Hold, TP: Under review for downgrade)


SP Setia announced that it is terminating the purchase of approximately 156 acres of freehold land in Cyberjaya from Cyberview Sdn Bhd and Setia Haruman worth RM190.6m that was announced in July 2007 due to non-fulfillment of certain conditions by the vendors. (Source: Bursa Malaysia Announcement)

Comments:

Slightly negative on SP Setia. The Cyberjaya project, termed Setia Eco Villa, with an estimated GDV of RM1.2b, comprising mid-to-high end gated and guarded semi-D, bungalow and commercial units, was originally targeted for launch in FY08 to be developed over a period of 7 years. As the deal has been aborted, it remains to be seen if SP Setia could quickly identify another piece of land in the Klang Valley with good development potential.

The bigger picture gets cloudy. However, in the present uncertain political / legislative climate, we believe SP Setia is likely to take a prudent, wait-and-see approach before going all out to secure more development land. In fact, we understand that management is guiding for a slowdown in near-term launches and sales in view of uncertainties in the market.

Vietnam also not so rosy. The less promising outlook is apparently not only affecting the Malaysian market. We understand that operating conditions in Vietnam are increasingly challenging, having to deal with high inflation which runs close to 15.6% YoY in Feb 2008. An unconfirmed source in Vietnam also indicated that house prices have fallen by as much as about 10-15% recently.

Target price and earnings forecasts under review. Our target price of RM4.80 based on 16x FY09 EPS and our earnings forecasts are presently under review for potential downgrades pending management's guidance in light of a likely slowdown in upcoming launches by SP Setia.