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.
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.
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.
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