LOCAL property concern SP Setia Bhd's warrants are trading at an attractive price, hovering below 85 sen. This low pricing, however, has not attracted the attention of analysts who seem to prefer the company's mother share.
“Warrants are only worth buying when the market is hot. Current market conditions are without doubt attractive, but it is still uncertain how long the trend will last. The mother share is also preferable (in contrast to the warrants) as there are dividend payments,” says an analyst from a foreign research house.
For the last financial year ended Oct 31 2002, SP Setia paid out dividends of 6.6 sen per share.
According to Multex Global Estimates the company is expected to pay a 7.7 sen dividend in financial year ending Oct 31 2003.
The company's warrants which are trading at a 47.3 per cent premium; have, however, some time to go before expiring, on June 15, 2005. The warrants have a strike price of RM2.78, and a gearing of 2.99 times.
SP Setia's mother share is currently trading at RM2.50. One analyst has a fair value of RM5 for it.
The outlook for the company seems good after several strategic acquisitions were made early last year, putting the company on a better footing in the property development and infrastructure market.
SP Setia, sometime last year, acquired almost 4,000 acres of land in Shah Alam, known as North Hummock, from closely held See Hoy Chan Plantations Sdn Bhd, spending RM600 million in the process.
Funds for the acquisition of land, about RM400 million were obtained by borrowings from OCBC Bank Malaysia Bhd, Employees Provident Fund, Great Eastern Life Assurance Bhd and MALAYAN BANKING BHD, with a seven-year repayment period.
Another noteworthy acquisition is a 21.9 per cent stake in infrastructure and building-construction company, main board listed Loh & Loh Corp Bhd for RM52 million or at RM3.50 per share.
Both the acquisitions were made in order to strengthen the company's land bank and positioning in the property development market.
SP Setia is also mulling the sale of two plots of land measuring in total 500 acres for RM185 million. This will potentially reduce borrowings by some 26 per cent to RM535 million, and lower the company's debt to equity ratio to 46 per cent, from the current 62 per cent.
Meanwhile, its valuation, say analysts, is compelling as the stock is trading at a fully diluted calendar year 2003 price earnings of only 9.6 times, a discount to the sector average.
The company has an impressive land bank of about 9,729 acres, and of late, has been busy with a joint venture agreement with Putra Jaya Holdings Sdn Bhd, to develop 334 acres of land at the Federal Administrative Centre in Putra Jaya.
Other ventures the company is involved in include the Pusat Bandat Puchong, Puchong Indah, Bukit Indah Ampang, Bukit Indah Johor, and Setia Indah Johor and Duta Nusantara projects.
SP Setia is also involved in the upgrading of the 47-kilometre Batu Pahat-Ayer Hitam-Kluang highway and the Federal Route 17, Pasir Gudang highway.
For the financial year ending Oct 31, 2003 Multex Global Estimates has forecast a net profit of RM125.15 million, up from RM102.41 million posted in FY02 for SP Setia.
The company's largest shareholders are the Employees Provident Fund with 7.17 per cent, Great Eastern Life Assurance with 4.58 per cent and Abdul Rashid Manaff, the company's chairman, holding 4.54 per cent.
The company's stock hit its 52-week high of RM3.20 on Aug 4 last year and its low of RM2.03 on Aug 8 the same year. SP Setia's warrants on the other hand hit a high of RM1.37 on April 2 last year and a low of 51 sen on Oct 14, 2002. The mother share finished Wednesday at RM2.44 while the warrants ended the day's trading at 81.5 sen.
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