Tuesday, August 16, 2011

SP Setia to build starter homes priced from RM300,000

PETALING JAYA - SP Setia Bhd's proposed purchase of 1,010.5 acres in Ulu Langat, Selangor, will see the property group more committed to building starter homes priced from RM300,000.
Last Friday, SP Setia announced its wholly-owned subsidiary, Bukit Indah (Selangor) Sdn Bhd, had entered into a sale and purchase agreement with Ban Guan Hin Realty Sdn Bhd for the proposed purchase of the freehold parcel for RM330.1mil or RM7.50 per sq ft.
The land, with a generally undulating terrain, is situated midway between Semenyih, Bangi old town and Beranang.
SP Setia said the proposed acquisition was expected to be completed during the first half of the financial year (FY) ending Oct 31, 2012.
According to president and chief executive officer Tan Sri Liew Kee Sin, the plan for the land is for a mixed development.
“We are looking at offering starter homes starting from RM300,000 onwards. The target launch should be in the next 18 to 24 months as it will take us this time frame for planning and approvals,” Liew told StarBiz in an e-mail response yesterday.
He added that the buyers targeted would be those from Kajang and Semenyih.
Analysts are generally positive on the proposed land deal given the low land cost and its sizeable land area which is hard to come by these days.
ECM-Libra Research said in a note yesterday the proposed project was expected to tap into strong demand for attractively priced homes by first-time owners and other home buyers in the Semenyih-Kajang corridor.
“This project will generate a net profit of RM630mil based on an 18% net margin, over an estimated 8-year development period. We expect the project to be launched in FY13.
“While the land cost at RM7.50 per sq ft is relatively cheap, meaningful earnings contribution is only expected from FY14 onwards. Its revised net asset value is raised marginally by 17 sen to RM4.07 per share which indicates SP Setia is already fairly valued at current valuation,” the research house added.
An analyst from a local brokerage believes demand for the project would be strong given the captive market and the product mix.
“The project can expect to see a big captive market at its disposal that includes residents in Kajang, Cheras and the larger Klang Valley. With an estimated GDV of RM3.5bil, SP Setia's plan to replicate its highly successful Setia Alam township is a viable proposition.
“The affordable houses that include typical link houses in the region of RM300,000 to RM350,000 should have a strong following, given the severe shortage of such houses in the Klang Valley,” the analyst pointed out.
He said the project was expected to yield a high development margin of 30% based on a break-even cost of RM175 per sq ft and a conservative selling price of RM250 per sq ft.
“SP Setia remains our pick for the sector. It is embarking on an accelerated growth-cycle where a combination of strong pricing trends and value-accretive landbanking should fuel significant net asset value (NAV) expansion for the group.”
He said SP Setia was currently trading at an attractive discount of 29% to its NAV estimate of RM5.41 a share. The counter closed at RM3.84 yesterday.
“We believe it should be trading at par to its NAV estimate given its solid track record and very aggressive landbanking underpinning its strong valuation,” he added.
For the current financial year ending Oct 31, SP Setia is targeting sales of RM3bil, up from RM2.3bil achieved last year.

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