Thursday, July 24, 2014

RHB Research upgrades SP Setia on possible M&A or privatisation

RHB Research upgrades SP Setia on possible M&A or privatisation
PETALING JAYA: RHB Research has upgraded property group SP Setia Bhd to a “buy” call, in anticipation of a possible corporate action involving a merger and acquisition (M&A) or privatisation of sorts.
The research house in a note to clients yesterday noted that the M&A or privatisation angle was possible for SP Setia as its current acting president and chief executive officer Datuk Voon Tin Yow would be stepping down on April 30 next year.
“Hence SP Setia will need a new and permanent leader soon,” it said.
Also, the undervaluation of the property group may prompt major shareholder Permodalan Nasional Bhd (PNB) to re-strategise the company potentially via a M&A or privisation deal, it said.
“Our expectation of PNB embarking on various corporate proposals may not be unreasonable given that Sime Darby Bhd, which is 46.4%-owned by PNB, is said to be planning to float some of its business divisions to better unlock values,” said the analyst, bearing in mind that PNB already has a strong property arm in I&P Group Sdn Bhd, and a substantial pool of property investment assets.
In recent months, Sime Darby has explored corporate exercies to unlock value in its property and automotive divisions. Towards this end, it has not discounted the possiblility of buying into a management company of a real estate investment trust (Reit) and injecting some of its commercial property into the Reit.
Last month, there were reports of Sime Darby listing its automotive arm.
The RHB analyst said there were a few potential plans for SP Setia, including a privatisation, asset injection, and/or M&A.
“Regardless of the route taken, we think it will be positive to share price and any strategic plan will be a chance to revive the sentiment and put the company’s business direction back on track,” according to the report.
Among the attractiveness of SP Setia is its strategic landbank that has low land cost.
In terms of pricing, PNB had in January 2012 made a general offer for SP Setia at RM3.95 per share.
However, the research house had estimated a slightly higher valuation for SP Setia, which is easily Malaysia’s biggest name in the property sector.
“While we would not deny that SP Setia should no longer garner a sector premium given the loss of key management personnel, we think a price-to-book ratio of 1.8 to 1.9 times is still fairly reasonable, and this would imply a value of RM4.18 to RM4.41 based on its latest net tangible asset of RM2.32 per share.
The research house raised its fair value target price to RM4.08 from RM3.54. The property stock closed three sen higher at RM3.53 yesterday, on a volume of 1.51 million shares.
On news of PNB planning to merge Sime Darby’s property arm with SP Setia, I&P and Eastern & Oriental Bhd (E&O) to create Malaysia’s largest property group, an industry observer said this unlikely.
“If they just combined SP Setia and I&P, that would already create a gargantuan property unit as both are asset-heavy,” the source said, adding that I&P itself was a merged entity of several property companies.
The source believed Sime Darby would continue to maintain its conglomerate status despite the reports of possible spin-offs of its units.
According to RHB Research, SP Setia and I&P currently have more than 5,000 acres of remaining landbank each while Sime Darby has 19,000 acres excluding its Battersea project and its stake in E&O.

Saturday, July 12, 2014



GST In Malaysia Explained

In Malaysia’s Budget 2014 speech, the implementation of Goods and Service Tax (GST) was perhaps the hottest topic. To be introduced in April 2015, it will replace Malaysia’s Sales tax (10%) and Service tax (6%). Under GST, most of the goods and services (except basic necessities) will be charged a tax rate of 6% at every stage of the supply chain. The question now on everyone’s mind – How will life be after GST?
To identify the most likely effects, we must first understand the different implementations of GST and their mechanisms.

Types of GST

There will be three different categories of goods & services under the GST scheme in Malaysia. They are:
I. Standard-Rated GST
Goods and services in this category will be charged a tax rate of 6% at every stage of the supply chain. The tax is billed and collected by businesses and paid to the government. Every party except the final consumer can claim back credits on the GST they already paid (known as input tax). Examples of the goods in this category are cloth, car and fruits. The following diagram shows how Standard-Rated GST works:

II.Zero-Rated GST
Goods and services in this category will be charged a GST rate of 0%. This means that GST is not charged to the final consumer. But businesses CAN claim back credits on their input tax. Examples of goods in this category are basic food item (meats, fish and cooking oil) and first 200 unit of electricity per month. The following diagram shows how zero-rated GST works, assuming the final product is zero-rated but the raw materials are standard rated:

III.Exempt-Rated GST
Goods and services that fall in this category will be non-taxable and are not subject to GST at the output stage. This means that GST is not charged to the final consumer. But it also means that businesses, particularly the final party in the supply chain (before the final consumer) CANNOT claim back credits on their input tax even if they might have incurred it earlier on. Examples of goods in this category are residential property and health care services. The following diagram will give a clearer picture on how Exempt-Rated GST works:


GST is a progressive tax regime that will supplant the Sales Tax and Service Tax in Malaysia in the near future. Understanding its mechanisms will help us to better gauge its potential impact on our lives and prepare for it. Finally, if you would like to know GST’s potential impact on house property prices and home loans, look no further than Loanstreet’s explanation of how GST will impact property prices.

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