S P Setia set to gain better value for its land in Johor

PETALING JAYA: The surprise cancellation of S P Setia Bhd’s land sale in Johor to Scientex Bhd is disappointing, but could turn out to be an advantage, says Maybank Investment Bank Research (Maybank IB Research).

“While the cancellation will slow down S P Setia’s plan to de-gear, it could be a blessing in disguise given the improving outlook of the Johor property market, which could allow S P Setia to price the land higher,” it added.

Last Friday, the property group announced that the disposal of 960 acres of freehold agricultural land in Mukim Tebrau to Scientex’s 70%-subsidiary Scientex Lestari was terminated due to non-fulfilment of a condition relating to approval from the Economic Planning Unit (EPU).

S P Setia had proposed to sell the land to Scientex Lestari for RM548mil or RM13 per square foot (psf) in early July 2023.

Notably, this is the second time the property group’s attempt to sell the prime land in Johor to Scientex encountered a setback. The first time was in 2021 at a price of RM518mil or RM12.39 psf.

However, the deal collapsed in March 2023 due to Scientex’s inability to secure a waiver for the bumiputra equity condition mandated by the EPU.

Together with land sales in Semenyih and Setia Alam, the land disposal to Scientex was supposed to lower S P Setia’s net gearing to 0.48 times (as per its guidance) from 0.53 times as of end-Sept 2023.

However, Maybank IB Research said it was not overly bearish on the latest development. It noted that there is rising demand for Johor property, which could allow S P Setia to price the land higher in the future.

“It is worth noting that the land-disposal agreement was signed before the announcement of special economic and financial zones in Iskandar Malaysia sometime in mid-July to August 2023,” said the research house.

To factor in the cancellation, Maybank IB Research has revised its financial year 2024 (FY24) and FY25 earnings forecasts for S P Setia by minus 6% to minus 40%.

It has a “buy” call on the stock with a new target price of RM1.18, two sen lower from before.

This is based on an unchanged 0.4 times estimated FY24 price-to-book value.

Meanwhile, TA Research, which has a “hold” rating on S P Setia, still anticipates an improvement in the group’s net gearing to 0.47 times by end-2024, driven by the repatriation of funds from overseas projects, the recognition of land sales totalling RM733mil and clearing of unsold inventory.

“Despite this setback, we understand that the group remains committed to actively seeking potential buyers for the land.

“With a positive outlook for the Johor property market in anticipation of increased demand driven by the region’s improved investment climate and economic opportunities, we remain optimistic that S P Setia could secure a better price for the land if disposal opportunities emerge once more,” said TA Research.

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S P Setia , Scientex


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