PETALING JAYA: SP Setia Bhd has been downgraded by research houses after its agreement to sell land in Johor to Scientex Bhd’s subsidiary was aborted owing to failure to get approval from the Economic Planning Unit (EPU).

In a bourse filing last Friday, SP Setia said its conditional sale and purchase agreement (SPA) to sell 960 acres in Tebrau to Scientex Lestari Sdn Bhd was terminated due to non-fulfilment of the condition precedent relating to EPU’s approval for the acquisition.

This is a blow for the country’s largest property developer as it is the second time the deal has fallen through.

The two companies had initially struck a deal for the land at RM518 million in 2021, but the deal collapsed in March 2023 because of Scientex’s inability to secure a waiver for the Bumiputera equity condition mandated by EPU.

Despite both parties re-entering negotiations in July,  with a revised price of RM548 million, and Scientex forming a joint venture with Azman Mahmud to fulfil the Bumiputera equity condition, the deal has once again fallen through.

Scientex is a plastics manufacturer which has diversified into property development. It had earmarked the land to be developed as Taman Pelangi Indah II with an estimated gross development value (GDV) of about RM8 billion.

TA Securities has downgraded the stock from “buy” to “hold” as it now only renders a total return of 11%, following the recent 28% price rally over the past month. It also cut its target price (TP) to RM1.05 per share from RM1.07 previously, and revised down its FY2024 earnings forecast by 52%.

“The termination was an unexpected disappointment for us. We had anticipated SP Setia’s net gearing to decrease to 0.43x (times) by end 2024 (from 0.53x as of September 2023) if the land sale had gone through,” it said in a note today.

However, it anticipates an improvement in the group’s net gearing to 0.47x by end-2024, driven by repatriating funds from overseas projects, recognising land sales proceeds totalling RM733 million and clearing unsold inventory.

Nevertheless, the research firm is confident SP Setia can still achieve its FY2023 sales target of RM4.2 billion despite the exclusion of the Tebrau land sales.

Meanwhile, PublicInvest Research downgraded SP Setia from “outperform” to “neutral”, slashed its FY2024 earnings by 46%, and cut its TP to RM1 from RM1.20 previously.

“We are disappointed as the land deal could have helped bump the group’s earnings while rightsizing its huge landbank and lighten its debt burden,” it said.

Despite the latest setback, it still has other deals announced including the sale of 17.99 acres of land in Setia City, Selangor to KSL Bestari Sdn Bhd for RM228.8 million and 500 acres to Mah Sing Group Bhd for RM392 million, it noted.

“It has plans to offload more non-core assets and potentially monetise these assets (with estimated value of RM5 billion) via a REIT listing or outright disposal,” said PublicInvest.

SP Setia’s shares ended 4 sen or 4.2% lower at 91 sen, valuing the group at RM3.96 billion. Scientex closed 5 sen or 1.3% lower at RM3.92, giving it a market capitalisation of RM6.08 billion.