Maybank likes SP Setia(8664.KL) due to its undemanding valuation

Maybank Securities Research has recommended buying SP Setia (SPSB MK), citing favourable outlook for the company. After a recent meeting with the company’s leaders, the research company is positive about SPSB’s prognosis in the next few years.

They expect that the net profit for the fiscal year 2024 might increase by more than twice compared to the previous year, mainly due to a sale of land. The money from selling the land is expected to decrease SPSB’s debt and finance costs, as well as allow the corporation to consider prospects for acquiring more land.

In addition, SPSB intends to maximise the value of its investment assets by utilising a Real Estate Investment Trust (REIT).

Maybank Securities Research has increased its earnings predictions for FY24-26 by 1-55% and the target price to MYR1.66 (+38sen) based on a higher 0.5x FY24E Price-to-Book Value (PBV) ratio (previously 0.4x). This adjustment reflects the positive expectations for earnings and the financial position.

The research business views the proposed REIT as a way for SPSB to reduce debt and realise the value in its investment properties, enabling the company to keep a share in these assets and collect dividend earnings. The REIT might also help with future additions of SPSB’s mature assets, allowing for the recycling of funds. These properties could consist of a shopping centre, hotels, educational institutions, and a conference centre.

According to Maybank Securities Research, their research of the probable land sale in Johor, considering various selling price assumptions, indicates a net gain from the property sale ranging from MYR352 million to MYR479 million. Considering the Johor land sale at an estimated selling price of MYR14 per square foot, Maybank has increased its earnings expectations for FY24/25/26 by 55.4%, 19.2%, and 1.4% accordingly. The research company still prefers SPSB due to its appealing value, mentioning factors such the land sale in FY24, the conversion of SPSB’s investment assets into a REIT in FY25-26, and a possible increase in BPS mall pricing in FY27.