SP Setia Berhad Maintain Neutral - I3investor · earnings of SP Setia in the near term as the project is still at an early stage of planning. The parties involved will conduct feasibility

KINDLY REFER TO THE LAST PAGE OF THIS PUBLICATION FOR IMPORTANT DISCLOSURES

03 April 2012 | Company Update

SP Setia Berhad Maintain Neutral

Making its foray into Coastal City in Southern China Revised Target Price (TP): RM4.21 (previously RM3.95)

INVESTMENT HIGHLIGHTS

• Benefitting from a closer tie between governments: SP Setia

and Rimbunan Hijau Group had via Qinzhou Development

Consortium S/B entered into a joint venture agreement with Qinzhou

Jingu Investment Co, Ltd (Qinzhou Jingu) to develop, construct and

operate the China-Malaysia Qinzhou Industrial Park (QIP) on a

parcel of land measuring approximately 55 sq km (13,590.5 acres).

The development was one of the two sister industrial parks

proposed after the bilateral talks between prime minister of Malaysia

and his counterpart from China. Malaysia has offered China a

development project similar to the QIP in Gebeng, Kuantan. The

QIP is the third industrial park in China to be developed under

government-to-government collaboration after the China-Singapore

Suzhou Industrial Park and Tianjin Eco-City.

• QIP strategically located at the port city of Southern China: QIP

is located 10km south of Qinzhou City and 5km north of the Guangxi

Qinzhou Free Trade Port Area which is a national economic and

technological development zone. It is also located between Beihai

City and Fangchenggang City; Beihai is a developing hub for

shipping oil between South East Asia and China and the latter is a

major regional shipping and trade hub between Guangxi and

Vietnam.

• Good connectivity: The QIP is currently accessible from Nanning

to its north via existing expressways. Accessibility to the QIP will be

further improved upon the completion of the Liujing-Qinzhou

Expressway, which will run along its eastern boundary; and the

Coastal Highway in the south. The QIP also enjoys railway

connectivity via the Qinzhou-Beihai Railway, the Qinzhou-

Fangchenggang Railway, the Qinzhou Port line and the suburban

railway system.

• QIP consist of 5 functional districts: The QIP comprises of 5

functional districts namely industrial; residential; supporting facilities

service; port new city production central; life central; and scientific

and technology research service. We believe SP Setia will

spearhead the residential and commercial components of the

project. The immediate development focus of the QIP is the start-up

district, which spans about 1,945 acres.

RETURN STATS

Price (02 Apr 12) 4.01

Target Price 4.21

Expected Share Price Return

4.99

Expected Dividend Yield 3.91

Expected Total Return +8.90

STOCK INFO

KLCI 1603.78

Bursa / Bloomberg 8664/

SPSB MK

Board / Sector Main/ Property

Syariah Compliant YES

Issued shares (mil) 1919.3

Par Value (RM) 0.75

Market cap. (RM’m) 7696.4

Price over NA 2.09x

52-wk price Range RM3.06-RM4.44

Beta (against KLCI) 1.05

3-mth Avg Daily Vol 1.81m

3-mth Avg Daily Value RM7.26m

Major Shareholders

PNB 47.42

ASB 19.25

EPF 5.44

KDN: PP 10744/06/2012

MIDF EQUITY BEAT Tuesday, 03 April 2012

2

• Proposed development at early stage of planning: QIP is at preliminary stage of planning and gross

development value, development cost as well as the expected commencement date of the proposed development

has yet to be determined. Nevertheless, based on preliminary estimate, the cost for the Start-Up District alone is

expected to be approximately RMB5.4b or RM2.6b. For the initial stage of the development, Qinzhou Jingu will

seek approval from the government to allow up to 30% of the commercial and residential land of the Start-up

District to be swapped for another piece of commercial and residential land of equivalent land value in the more

readily developable, Binhai New Town. Binhai New Town has a total planned area of 110km² and a net

development area of 45km². The town is designed to be an industrial service centre, seaside tourist resort and

high-end residential district with an expected future population of 500,000 upon completion.

• No major financial impact in the near term: The registered capital of the JV company will be RMB1.8b or

approximately RM878.05 million. Effectively, SP Setia will own 22% of the whole project which will also translate

into initial capital outlay of about RM194m. Nevertheless, there will be no impact to the balance sheet and

earnings of SP Setia in the near term as the project is still at an early stage of planning. The parties involved will

conduct feasibility study on the proposed development prior to entering into a joint venture agreement for the

purpose of the development of the QIP. Hence, at current juncture, we are maintaining our forecasts for SP Setia.

• Valuation: The outlook for China’s property market remains uncertain as the property price has escalated to

unsustainable level due to excessive speculative activities. Nonetheless, we are positive on the involvement of SP

Setia as QIP is a government to government project. Moreover, the China government had implemented several

measures to counter the property speculation issue. The JV project will diversify SP Setia’s land bank which is

predominantly located in Malaysia. Currently, only 12.6% of SP Setia total land bank is located overseas in

countries which include Vietnam, Singapore and Australia. We are sanguine that SP Setia could replicate the

success of its township development in Qinzhou China. We are maintaining our NEUTRAL recommendation with

a higher target price of RM4.21. We ascribed PE of 20.9X (which is 0.25 standard deviation above its historical

average) against its FY12 EPS of 20.2 sen. We ascribed a PE above it historical average as we believe (i) SP

Setia, as a premium brand should command higher valuation, and (ii) the backing of PNB as its major shareholder

will raise the chances of SP Setia involvement in more government related projects.

INVESTMENT STATISTICS

FY Oct FY10 FY11E FY12F FY13F

Revenue 1,745.9 2,232.5 2,752.0 3,147.8

EBIT 340.2 442.0 519.6 585.7

Pretax Profit 331.0 430.5 507.6 573.7

Net Profit 249.0 321.9 379.7 429.5

EPS 24.7 18.1 20.2 22.9

EPS growth 45.9 -26.8 12.0 13.1

PER (x) 16.2 22.2 19.8 17.5

DPS (sen) 20.0 14.0 15.7 17.7

Dividend Yield (%) 5.0 3.5 3.9 4.4

Source: Company, Forecasts by MIDFR


3

Appendix

Shareholding structure of the joint venture

* Qinzhou Jingu is a wholly-owned limited liability company controlled by Qinzhou City Development and Investment Group Co. Ltd.

DAILY PRICE CHART

Syed Muhammed Kifni Sean Liong Cheng Fatt [email protected] 03-2173 8227

China-Malaysia Qinzhou Industrial Park Investment Co. Ltd (The Joint

Venture Company)

Qinzhou Jingu* (51%) Qinzhou Malaysia (49%)

S P Setia (45%)

Rimbuna Hijau Group

(45%)

Dato Beh Hang Kong

(5%)

James Lau Sze Yuan

(5%)

5

10

15

20

25

30Historical PE Ratio

PE Ratio Average PE


4

Location of Qinzhou China-A

Location Map of Qinzhou Industrial Park


5

MIDF RESEARCH is part of MIDF Amanah Investment Bank Berhad (23878 - X).

(Bank Pelaburan)

(A Participating Organisation of Bursa Malaysia Securities Berhad)

DISCLOSURES AND DISCLAIMER

This report has been prepared by MIDF AMANAH INVESTMENT BANK BERHAD (23878-X). It is for

distribution only under such circumstances as may be permitted by applicable law.

Readers should be fully aware that this report is for information purposes only. The opinions contained

in this report are based on information obtained or derived from sources that we believe are reliable.

MIDF AMANAH INVESTMENT BANK BERHAD makes no representation or warranty, expressed or

implied, as to the accuracy, completeness or reliability of the information contained therein and it should

not be relied upon as such.

This report is not, and should not be construed as, an offer to buy or sell any securities or other

financial instruments. The analysis contained herein is based on numerous assumptions. Different

assumptions could result in materially different results. All opinions and estimates are subject to change

without notice. The research analysts will initiate, update and cease coverage solely at the discretion of

MIDF AMANAH INVESTMENT BANK BERHAD.

The directors, employees and representatives of MIDF AMANAH INVESTMENT BANK BERHAD may

have interest in any of the securities mentioned and may benefit from the information herein. Members

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or published in any form or for any purpose.

MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS

STOCK RECOMMENDATIONS

BUY Total return is expected to be >15% over the next 12 months.

TRADING BUY Stock price is expected to rise by >15% within 3-months after a Trading Buy rating has been assigned due to positive newsflow.

NEUTRAL Total return is expected to be between -15% and +15% over the next 12 months.

SELL Negative total return is expected to be -15% over the next 12 months.

TRADING SELL Stock price is expected to fall by >15% within 3-months after a Trading Sell rating has been assigned due to negative newsflow.

SECTOR RECOMMENDATIONS

POSITIVE The sector is expected to outperform the overall market over the next 12 months.

NEUTRAL The sector is to perform in line with the overall market over the next 12 months.

NEGATIVE The sector is expected to underperform the overall market over the next 12 months.

SP Setia Berhad Maintain Neutral - I3investor · earnings of SP Setia in the near term as the project is still at an early stage of planning. The parties involved will conduct feasibility

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