SP Setia: A Comprehensive Analysis by Maybank Investment Bank

Date: November 27, 2024

Broker: Maybank Investment Bank Berhad

Introduction

SP Setia Berhad (SPSB) stands as a beacon in Malaysia’s real estate landscape. This comprehensive analysis by Maybank Investment Bank provides insights into the company’s strategic moves, financial health, and future prospects. With a focus on industrial development, REIT expansions, and international ventures, SP Setia is poised for growth. Let’s delve into the details that make FY25 a potentially remarkable year for this real estate giant.

Industrial Development: The Growth Engine

SP Setia is gearing up to leverage its industrial parks as key growth drivers. Projects such as Setia Alaman, Tanjung Kupang, and Setia Fontaines are at the forefront. Setia Alaman, with a gross development value (GDV) of MYR3.1 billion in Klang, is expected to contribute significantly from FY25, pending planning approvals. Tanjung Kupang in Johor, with a GDV of MYR1.9 billion, is set to transform into a data center or high-tech park through joint ventures by 1H25. Meanwhile, Setia Fontaines in Bertam (MYR1.7 billion GDV) is slated for launch by 2026, pending land conversion approvals. These developments are poised to boost growth through land sales, collaborations, and REIT income.

REIT Expansion: Diversification and Stability

SP Setia is making strides towards listing its investment properties within the next 12 months. This move is expected to enhance financial stability by recycling proceeds from asset sales, reducing debt, and providing recurring income. With an estimated assets under management (AUM) of MYR1.5 billion, the REIT will include retail malls, offices, Tenby schools, and convention centers. Notably, industrial properties from Green Industrial Parks in Tanjung Kupang, Klang, and Bertam will be integrated into the REIT, contributing to its diversified portfolio.

Battersea Power Station: Managing Risks

Despite the positive outlook, SP Setia acknowledges the risks associated with its 40%-owned Battersea Power Station project. However, the company believes that most costs have been finalized, minimizing future losses. The exclusive preview of Parkside Residences, priced between MYR1,300-1,400 per square foot, has received positive responses, with a 29% reservation rate over a weekend, indicating a strong market interest.

Financial Overview and Market Performance

The financial projections for SP Setia paint a promising picture. Revenue is expected to grow by 57.1% in FY24, although a slight decline is anticipated in the following years. The company’s core net profit is projected to surge by 72.7% in FY24, despite experiencing some fluctuations in subsequent years. SP Setia’s net gearing has improved significantly, reducing from 57.1% in FY22 to a projected 38.1% in FY24. The company’s stock performance has shown resilience, with a 12-month price target set at MYR1.64, reflecting a potential upside of 22%.

Environmental, Social, and Governance (ESG) Initiatives

SP Setia is committed to enhancing its ESG performance. The company has implemented Setia eGreenLiving across all developments to drive energy efficiency and reduce carbon footprint. Collaborations with Tenaga Nasional Berhad (TNB) for solar panel installations underscore its commitment to sustainability. SP Setia aims to achieve net-zero emissions by 2050, with interim targets of a 45% reduction by 2030 and 70% by 2040 for Scope 1 and 2 emissions.

Conclusion

SP Setia Berhad is strategically positioned to capitalize on its industrial and REIT expansions, supported by a robust financial framework and a commitment to sustainability. While challenges remain, particularly with the Battersea Power Station project, the company’s proactive measures and strategic initiatives are expected to drive growth and stability. Investors are encouraged to consider SP Setia as a promising opportunity in Malaysia’s real estate sector.