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An Expanding Presence in Johor
THE BUZZ
On 9 Sept 2010, SP Setia announced that it would be acquiring 259.1 acres of freehold land within the Tebrau Corridor in South Johor, Malaysia, from a private developer called Kelana Ventures SB. The acquisition is expected to be completed in late 2011. (Bursa)
OUR TAKE
Background on the acquisition. SP Setia has been present in Johor for more than 13 years and is currently involved in the development of four ongoing projects, namely Bukit Indah Johor, Setia Indah Johor, Setia Tropika and Setia Eco Gardens. With Setia Indah Johor at the tail-end of its development, this new land acquisition in Tebrau Corridor will replenish Setia Indah's landbank.
Arguably a good location. The land is situated in the Tebrau Corridor, a fast growing area in Johor given the increasing number of developments and new property launches. It is located immediately north of and adjacent to the Group’s mature Setia Indah Johor township.
Other projects in the vicinity include Taman Mount Austin and Taman Daya. In addition, Taman Impian Emas, Taman Anggerik and Taman Sri Putra are located along Jalan Maju Jaya, which is towards the south-west of the land while Taman Impian Jaya is located north of the land (see Figure 1).
The close proximity of the land to other mature developments offers several important advantages. Key among these is the potential demand among upgraders in the area desiring to move up to larger, newer and better designed houses. Another source of demand is young adults planning to move out of their parents' homes without having to leave the comforts of the local support network that they have grown accustomed to.
Furthermore, the existing population of the surrounding mature housing projects will also form the core catchment area for the proposed development's commercial components. The track record of property sales in Setia Indah is depicted in Figure 2.
What is the estimated GDV? Based on a preliminary feasibility study and revised layout plan, which is subject to the approval of the relevant authorities, the proposed development, which is expected to have a GDV of RM1.5bn, is envisaged to commence by end-2011 or early FY12. It may span a development period of some 8 years.
However, it is currently too preliminary to ascertain the total development cost, the expected completion date of the development and the expected profits to be derived from it. The land is expected to be developed into another township with a mix of residential and commercial properties.
Quite a fair price. The acquisition cost of the land will be RM15psf, which is quite fair vis-à-vis the average price of RM20-25psf for residential land in Johor. In addition, the land cost would come to only about 11% of the guided GDV of RM1.5bn, which is fair.
Not included into earnings for now. Earnings contribution, at the earliest, is expected to commence from late 2011 (or early FY12) and onwards. Spreading the RM1.5bn development over a period of 8 years and assuming a net margin of 15%, this may potentially add a further +2.8 sen to SP Setia’s EPS per annum for 8 years. As the launching and development details are still sketchy, we are not imputing this into our earnings forecast for now.
Maintain BUY. Note that we upgraded SP Setia to a BUY in our 3 Sept 2010 property sector report ‘A Brewing Real Estate Mania’ on the basis that we believe SP Setia will be buoyed by the coming property upcycle which will be primarily led by mid-to-high end landed properties.
Leaving our earnings forecasts unchanged for now, we continue to value SP Setia at RM6.31 based on 2.8x CY11 P/NTA, which is approximately 2.5? above its 11-year historical mean.
This land acquisition and its development prospects may further strengthen the developer’s foothold to capitalize on this boom in mid-to-high end landed properties in Malaysia. SP Setia remains as our top pick for the property sector for the next 12 months.
THE BUZZ
On 9 Sept 2010, SP Setia announced that it would be acquiring 259.1 acres of freehold land within the Tebrau Corridor in South Johor, Malaysia, from a private developer called Kelana Ventures SB. The acquisition is expected to be completed in late 2011. (Bursa)
OUR TAKE
Background on the acquisition. SP Setia has been present in Johor for more than 13 years and is currently involved in the development of four ongoing projects, namely Bukit Indah Johor, Setia Indah Johor, Setia Tropika and Setia Eco Gardens. With Setia Indah Johor at the tail-end of its development, this new land acquisition in Tebrau Corridor will replenish Setia Indah's landbank.
Arguably a good location. The land is situated in the Tebrau Corridor, a fast growing area in Johor given the increasing number of developments and new property launches. It is located immediately north of and adjacent to the Group’s mature Setia Indah Johor township.
Other projects in the vicinity include Taman Mount Austin and Taman Daya. In addition, Taman Impian Emas, Taman Anggerik and Taman Sri Putra are located along Jalan Maju Jaya, which is towards the south-west of the land while Taman Impian Jaya is located north of the land (see Figure 1).
The close proximity of the land to other mature developments offers several important advantages. Key among these is the potential demand among upgraders in the area desiring to move up to larger, newer and better designed houses. Another source of demand is young adults planning to move out of their parents' homes without having to leave the comforts of the local support network that they have grown accustomed to.
Furthermore, the existing population of the surrounding mature housing projects will also form the core catchment area for the proposed development's commercial components. The track record of property sales in Setia Indah is depicted in Figure 2.
What is the estimated GDV? Based on a preliminary feasibility study and revised layout plan, which is subject to the approval of the relevant authorities, the proposed development, which is expected to have a GDV of RM1.5bn, is envisaged to commence by end-2011 or early FY12. It may span a development period of some 8 years.
However, it is currently too preliminary to ascertain the total development cost, the expected completion date of the development and the expected profits to be derived from it. The land is expected to be developed into another township with a mix of residential and commercial properties.
Quite a fair price. The acquisition cost of the land will be RM15psf, which is quite fair vis-à-vis the average price of RM20-25psf for residential land in Johor. In addition, the land cost would come to only about 11% of the guided GDV of RM1.5bn, which is fair.
Not included into earnings for now. Earnings contribution, at the earliest, is expected to commence from late 2011 (or early FY12) and onwards. Spreading the RM1.5bn development over a period of 8 years and assuming a net margin of 15%, this may potentially add a further +2.8 sen to SP Setia’s EPS per annum for 8 years. As the launching and development details are still sketchy, we are not imputing this into our earnings forecast for now.
Maintain BUY. Note that we upgraded SP Setia to a BUY in our 3 Sept 2010 property sector report ‘A Brewing Real Estate Mania’ on the basis that we believe SP Setia will be buoyed by the coming property upcycle which will be primarily led by mid-to-high end landed properties.
Leaving our earnings forecasts unchanged for now, we continue to value SP Setia at RM6.31 based on 2.8x CY11 P/NTA, which is approximately 2.5? above its 11-year historical mean.
This land acquisition and its development prospects may further strengthen the developer’s foothold to capitalize on this boom in mid-to-high end landed properties in Malaysia. SP Setia remains as our top pick for the property sector for the next 12 months.
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