KUCHING: SP Setia Bhd (SP Setia) contribution to the joint venture (JV) to develop some 195 acres of land north of Klang valley has been viewed as being fair as land in the outskirts of Kuala Lumpur has been significantly appreciating in recent years.
To recap, the group had entered into a JV with Cash Band Bhd (CCB) – a 99.98 per cent owned subsidiary of Kumpulan Perangsang Selangor Bhd – to develop a mixed residential and commercial project on three parcels of leasehold land measuring 194.65 acres in Templer’s Park.
RHB Research Institute Sdn Bhd (RHB Research) stated, “CCB is the landowner, and has issued request for proposal to various parties. SP Setia has therefore been chosen to be the developer.
“Depending on whether the low/medium cost housing is required, SP Setia is obligated to pay 13 to16 per cent of the gross sales value or RM140 million to RM200 million to the landowner.”
With regards to the RM1.24 billion gross development value (GDV) project, the research house opined, “The amount that SP Setia will need to pay translates into a land cost of RM17 to RM24 per square foot, depending on the housing content.
“Assuming the rezoning is successful, the price looks reasonable, as lands in the outer Kuala Lumpur city have appreciated significantly over the last two years. This golf club land is not far from the city centre, just about 20 kilometres away.
“We believe SP Setia will leverage on the surrounding greeneries to develop its eco themed development. The project will have a development period of six to12 years.”
Meanwhile, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) noted, “This came as a surprise and is slightly positive since circa 50 per cent of land cost is paid progressively over the six-year development period; the first RM100 million is only due upon CBB meeting the CPs (12-month period).
“Current net gearing of 0.6 times is at the limits of our comfort level while the group requires capital to kick-start catalytic projects like Battersea.
“So, progressive land payments are handy since SP Setia has yet to complete its 15 per cent placement exercise (up to RM1 billion); post placement, net gearing will be lowered to 0.4 times,” the research arm said.
It added that the land cost was considered ‘fair’ since it would be 16 per cent of the guided GDV; this would imply mid-teens development margins.
“While the project is expected to be accretive to RNAV (revised net asset value) given the long period to formalise the JV, we are keeping our RNAV estimate unchanged.
“We maintain our earnings forecasts, as the project may not start over the next two years due to the expected period needed to fulfill the conditions precedent. Our fair value is kept at RM3.66 at 15 per cent discount to RNAV,” said RHB Research.
Meanwhile, Kenanga Research maintained its target price of RM3.30 per share, based on 40 per cent discount on its fully diluted sum of parts RNAV of RM5.46 per share.