UOBKH Research estimates S P Setia's 2Q24 net profit to come in at RM400mil.
PETALING JAYA: S P Setia Bhd, a property giant controlled by Permodalan Nasional Bhd, has some interesting plans in the pipeline that includes the development of a Johor-based industrial park with potential data centres and the setting up of a real estate investment trust (REIT) valued up to RM1.5bil.
In a note, UOB Kay Hian (UOBKH) Research said S P Setia Bhd’s 307-acre landbank in Tanjung Kupang, Johor, is likely to be developed into a managed industrial park that may potentially incorporate data centres.
It further said S P Setia is in talks with a joint-venture (JV) partner for the development, with an estimated gross development value (GDV) of RM1.87bil.
The net book value of the Tanjung Kupang land is estimated at RM30mil, with the land cost expected at RM2.24 per sq ft.
Based on UOBKH Research’s channel checks, the infrastructure costs to set up an industrial park is estimated to be RM30 to RM50 per sq ft.
“Coupled with a conversion premium, we estimate net profit margin for this project to be 40% to 50%.
“Hence, an expected GDV of RM1.87bil could yield RM750mil to RM935mil in net profit. Assuming a 50:50 JV structure, S P Setia’s potential net profit is RM375mil to RM467mil. The project is expected to contribute positively to earnings starting in 2025.
“On an annual basis, we estimate net profit of RM125mil to RM155mil for a development period of three years (2025-2027) from this project alone (approximately 30% of 2025 net profit forecast).”
It is worth noting that the feasibility study for the project is still ongoing.
“Based on our channel checks, the Tanjung Kupang land is expected to meet crucial criteria for data centres, including flood risk-free zones, power and water availability and fibre connections, making it a suitable location for such facilities,” said UOBKH Research.
The land, which had received an approval-in-principle for industrial use, is part of the Iskandar Malaysia economic corridor. It is located near the Malaysia-Singapore Second Link and major highways.
UOBKH Research also noted that S P Setia is preparing to inject its investment properties into a REIT, estimated within the next 12 months, with a RM1.3bil to RM1.5bil valuation.
For comparison, IGB-REIT, Pavilion-REIT and Sunway-REIT currently have market capitalisations of RM7.1bil, RM5.1bil and RM5.6bil, respectively.
“The REIT is expected to be a diversified REIT and we think its assets such as Setia City Mall (over 90% occupancy), hotels under the Amari brand and Tenby International School may be suitable for injection into the REIT.
“Assuming S P Setia holds 50% of the REIT, cash proceeds for S P Setia could be RM650mil to RM750mil,” it said.
S P Setia is also looking to slash at least one-third of its inventory yearly and reduce gearing by 0.4 times in 2024 and 0.3 times by 2027.
“Gearing showed a substantial decline in the first quarter of 2024 (1Q24) to 0.45 times from 0.49 times in 4Q23.
“Including redeemable convertible preference share (RCPS), gearing also declined substantially to 0.63 times in 1Q24 from 0.75 times in 4Q23, thanks to its monetisation efforts and RCPS conversion.”
Commenting on S P Setia’s upcoming 2Q24 results, UOBKH Research expects a “very strong” net profit following the disposal of the 960-acre land parcel in Tebrau, Johor to Senibong Island, in a cash deal worth RM564mil.
UOBKH Research estimated the 2Q24 net profit to come in at RM400mil, as compared to RM72.8mil in 1Q24 and RM60.2mil in 2Q23.
“We raise our 2024-2026 net profit forecasts by 20% to 30% due to adjustments in the timing of land sales recognition and earlier recognition of the Tanjung Kupang project in our forecast.”
Meanwhile, S P Setia’s overall launches in 1Q24 were relatively low at a total of RM146mil, primarily due to pending authority approvals for some projects.
That said, launches are expected to be higher moving forward.
UOBKH Research kept its “buy” call on S P Setia, with a higher target price of RM1.90 from RM1.80 previously.
