Property developer has raised just short of RM1 billion from two land sale transactions in the last month.

PETALING JAYA: Research houses have welcomed SP Setia Bhd’s move to sell 959.72 acres of prime freehold land in Tebrau, Johor Bahru, to Scientex Bhd for RM547.65 million in cash, as it reduces the property developer’s gearing and allows it to get better financing terms for future developments.

The proposed disposal, announced yesterday, is SP Setia’s second land sale in little less than a month.

In late June, it sealed a deal to dispose two parcels of land in Semenyih, Selangor, to Mah Sing Group Bhd for RM392 million cash. This means that the two land sales will bring in a whopping RM939.65 million.

With the latest deal, the group’s net gearing (including redeemable convertible preference shares) will improve to 72.7% from 79.8% as at end-March, said Hong Leong Investment Bank (HLIB) Research in a note today.

It added the deal should lower SP Setia’s funding cost and reduce the risk of it running into cash flow constraints, especially if the market turns unfavourable.

HLIB has maintained its ‘hold’ call with an unchanged target price (TP) of 53 sen.

SP Setia, through its indirect wholly-owned subsidiary Pelangi Sdn Bhd entered into a conditional sale and purchase agreement (SPA) with Scientex Lestari Sdn Bhd, a subsidiary of Scientex, to dispose the eight parcels of freehold land in Tebrau. The disposal is expected to be completed by Q2 2024.

MIDF Research noted this is the second time SP Setia has entered into a land disposal agreement with Scientex for the same plot of land.

“To recap, SP Setia on May 7, 2021, entered into an SPA with Scientex for the same plot of land for RM518 million,” it said.

However, the deal was terminated in March 2023 due to non-fulfilment of conditions relating to the approval by the government’s economic planning unit.

Nevertheless, the research firm views the latest deal as a ‘slight positive’ to SP Setia as the new disposal consideration of RM547.65 million is higher than the previous disposal consideration.

“The land disposal is expected to result in a disposal gain of RM438 million,” said MIDF, which maintained its ‘buy’ call with an unchanged target price of 71 sen.

Monetising land assets

Meanwhile, Public Investment Bank Bhd (PublicInvest) has maintained its ‘outperform’ call with a target price of 95 sen.

“The Tebrau land sale price at RM547.65 million is about 6% higher than what was mooted in the earlier deal that was rescinded,” it noted.

On the heels of the group’s 500 acres land disposal to Mah Sing Group in June, PublicInvest said the two deals are expected to monetise about RM940 million to the group.

It is also positive with SP Setia’s commitment to bring down its debt load to 0.5x by end FY2023.

“The disposal is in line with SP Setia’s strategy to improve its capital efficiency by offloading non-core assets,” said PublicInvest, noting other assets that could be monetised include investment assets with an estimated value of RM5 billion.

RHB Research has upgraded its call from ‘neutral’ to ‘buy’ with a target price of 75 sen from a previous 60 sen.

The research house is upbeat on SP Setia, given the management’s “more aggressive effort in de-gearing”.

“With a better balance sheet, SP Setia should be on a stronger footing to improve its core operations, which have shown various inefficiencies in our view.

However, AmInvestment Bank has maintained its ‘hold’ call on SP Setia with a slightly higher fair value of 61 sen from the previous 60 sen.

“Upon the completion of the disposal, we expect the group’s cash position to increase by 14%. The sales proceed is assumed to be utilised for debt reduction, leading to an improvement of FY2024F net gearing ratio to 0.49x from 0.54x,” it said.

It said that the transaction was terminated in March 2023 due to the non-approval of the waiver for 30% bumiputera equity ownership condition imposed by the Economic Planning Unit.

“Nevertheless, we anticipate that this condition precedent will be satisfied with the involvement of a bumiputera individual, Azman Mahmud as a joint venture partner of the purchaser, Scientex Lestari,” AmInvest added.

At 4:43pm, SP Setia’s share price was up half-a-sen or 0.88% to 57 sen with a market capitalisation of RM2.33 billion. As for Scientex, its share price fell 4 sen or 1.15% to RM3.43, giving it a market capitalisation of RM5.32 billion.