This article first appeared in The Edge Financial Daily on January 22, 2018

S P Setia Bhd
(Jan 19, RM3.24)
Maintain buy at an unchanged TP of RM 4.13: S P Setia Bhd has announced that it had entered into a heads of terms with Permodalan Nasional Bhd (PNB) and Employees Provident Fund (EPF) to explore the terms of a potential sale, on completion, of the commercial assets of Phase 2 of the Battersea Power Station to a joint-venture company to be formed between PNB and EPF. The indicative sale price is estimated to be about £1.61 billion (RM8.8 billion). We gather that the commercial assets of Phase 2 of the Battersea Power Station are office and retail buildings, with completion expected to be in 2020.

We view the potential sale of commercial assets of Phase 2 of the Battersea Power Station to be neutral to positive. The potential sale of the commercial assets will enable S P Setia to unlock the value of the commercial assets while allowing S P Setia to focus on its role as property developer. With the potential sale of the commercial assets of Phase 2 of the Battersea Power Station, S P Setia will now focus on securing the development profit from the remaining development in Phase 3 to Phase 7 of the Battersea Power Station project.

We do not expect earnings impact from the potential sale of commercial assets of S P Setia in the near term as completion of the commercial buildings is expected to take place in 2020. Hence, we maintain our earnings forecasts for FY17/FY18.

We maintain our target price (TP) at RM4.13, based on 10% discount to revalued net asset valuation. We maintain our “buy” call on S P Setia for its plan to be included as one of the FBM KLCI component stocks. Besides, dividend yield of S P Setia is attractive at 5.8%. — MIDF Research, Jan 19