S P Setia Bhd (Feb 8, RM3.95)
Maintain trading buy with target price RM4.30: In The Edge weekly’s cover story interview, CEO Tan Sri Liew Kee Sin explained the rationale for his joint takeover of S P Setia with major shareholder Permodalan Nasional Bhd (PNB) and emphasised the need to move forward.
Key performance indicators for the next three years include 10% to 20% profit growth per year even in bad times.
We are encouraged by the target of earnings expansion even in bad times as this sector bellwether saw a drop in profit during the 2008/09 global financial crisis. We keep our target basis of parity with revalued net asset value (RNAV) and “trading buy” call.
The highlights of the extensive interview are: (i) it will be business as usual for the next three years; (ii) Liew will stay on beyond the three years as long as he enjoys his work and has freedom to manage the group; (iii) PNB could retain management if it achieves its sales targets and earnings growth of 10% to 20% per year and at least 10% in bad times; (iv) Liew is happy with the terms of the new conditional offer which he thinks is a very good deal; (v) PNB has been a passive shareholder for the past few years but if it could help S P Setia secure landbank, that would be “fantastic”.
The key surprise from the article was S P Setia targeting at least 10% profit growth even in difficult times. This could be a challenge as S P Setia, along with most developers, suffered a fall in revenue and profit during the global financial crisis due to weak sales, rising raw material costs and a squeeze in margins.
S P Setia sacrificed margins to push sales. But we think that its earnings should be more resilient this time around given its expanded landbank, more product offerings and geographical spread.
Investors should accumulate S P Setia’s shares as the outcome of the conditional takeover is close to our best-case scenario of management continuity and a cementing of ties with PNB.
This provides S P Setia with rock-solid backing and improves its chances of securing more privatised landbank. It should also facilitate the group’s global expansion. We believe that selling pressure after the conditional offer will be minimal, given that investors can sell on the open market now at close to the offer price. — CIMB IB Research, Feb 8
This article appeared in The Edge Financial Daily, February 9, 2012.
Maintain trading buy with target price RM4.30: In The Edge weekly’s cover story interview, CEO Tan Sri Liew Kee Sin explained the rationale for his joint takeover of S P Setia with major shareholder Permodalan Nasional Bhd (PNB) and emphasised the need to move forward.
Key performance indicators for the next three years include 10% to 20% profit growth per year even in bad times.
We are encouraged by the target of earnings expansion even in bad times as this sector bellwether saw a drop in profit during the 2008/09 global financial crisis. We keep our target basis of parity with revalued net asset value (RNAV) and “trading buy” call.
The highlights of the extensive interview are: (i) it will be business as usual for the next three years; (ii) Liew will stay on beyond the three years as long as he enjoys his work and has freedom to manage the group; (iii) PNB could retain management if it achieves its sales targets and earnings growth of 10% to 20% per year and at least 10% in bad times; (iv) Liew is happy with the terms of the new conditional offer which he thinks is a very good deal; (v) PNB has been a passive shareholder for the past few years but if it could help S P Setia secure landbank, that would be “fantastic”.
The key surprise from the article was S P Setia targeting at least 10% profit growth even in difficult times. This could be a challenge as S P Setia, along with most developers, suffered a fall in revenue and profit during the global financial crisis due to weak sales, rising raw material costs and a squeeze in margins.
S P Setia sacrificed margins to push sales. But we think that its earnings should be more resilient this time around given its expanded landbank, more product offerings and geographical spread.
Investors should accumulate S P Setia’s shares as the outcome of the conditional takeover is close to our best-case scenario of management continuity and a cementing of ties with PNB.
This provides S P Setia with rock-solid backing and improves its chances of securing more privatised landbank. It should also facilitate the group’s global expansion. We believe that selling pressure after the conditional offer will be minimal, given that investors can sell on the open market now at close to the offer price. — CIMB IB Research, Feb 8
This article appeared in The Edge Financial Daily, February 9, 2012.
