JB land sale to help S P Setia reduce its net gearing

SP Setia would be using the sales proceeds in other project developments for immediate launches and to repay its borrowings.

PETALING JAYA: S P Setia Bhd’s sale of eight parcels of freehold land measuring 959.7 acres in Johor Baru for RM518.1mil to Scientex Bhd is a positive move, according to research analysts.

In a report, AmInvestment Bank Research said this would enable S P Setia to monetise its undeveloped land bank while allowing the group to focus on existing projects, in line with its cost rationalisation initiatives for better operational efficiency.

Last Friday, SP Setia said the parcels of land disposed amount to around 960 acres and are registered for agriculture use. They currently home matured oil palm trees.

Post-sale, SP Setia’s total remaining land bank would be around 7,569 acres.

The land parcels are located 28km away from Johor Baru city centre and 18km away from the Senai International Airport. Accessibility is via the Pasir Gudang Highway or Tebrau Highway.

AmInvestment Bank Research said the selling price of RM12.39 per sq ft is reasonable, given the premium of RM37mil or 8% to City Valuers & Consultants Sdn Bhd’s valuation of RM481mil or RM11.50 per sq ft.

SP Setia would be using the sales proceeds in other project developments for immediate launches and to repay its borrowings.

This should help reduce the group’s estimated net gearing for financial year ending Dec 31,2022 (FY22) to FY24 by 1% to 3%, or to range from 0.48 to 0.50 times, according to AmInvestment Bank Research.

The research unit also noted that as the sales proceeds will be received in phases over the next three years, its forecasts are unchanged pending the completion of the first phase of the land sale for four parcels by the first quarter of 2022.

AmInvestment Bank Research maintains its “hold” recommendation on S P Setia with a higher fair value of 92 sen per share (from 85 sen per share) based on a 50% discount of an increased revalued net asset value (RNAV) of RM8.2bil (5% increase) and a neutral environmental, social, and governance (ESG) rating of three stars.

The research unit said its higher RNAV stems from the estimated gains of RM300mil (1.5 times FY21 estimated net profit) arising from the land sale.

Meanwhile, Kenanga Research is also positive on the land disposal and said the impact to S P Setia’s earnings is significant for FY22 and beyond.

“We like the fact that S P Setia is monetising the land bank in Johor which has been a challenging market, freeing up cash for its other development projects, ” said the research unit.

However, it believes the impact on gearing in FY22 is minimal, lowering it marginally to 0.63 times (from 0.65 times) once the disposal materialises.

Kenanga Research also does not discount the possibility of additional land sales by S P Setia in the near term.

It noted that the group’s unbilled sales of RM10bil provide two years of earnings visibility and thus some buffer during this challenging period.

Regarding its outlook, S P Setia expects flattish sales of RM3.8bil in FY21.