Analysts positive on SP Setia acquisition of I&P

PETALING JAYA: Analysts are positive on SP Setia Bhd's plans to acquire I&P Group, as it is revised net asset value (RNAV) accretive, and would create synergy and enhance the value of the group's existing landbanks and projects.
In a note yesterday, HLIB Research said the proposed acquisition of I&P would double the group's existing landbanks to 9,500 acres and potentially become the largest property player in the market.
In addition, it said the likelihood of the deal falling through and integration risk are less of a concern given that Permodalan Nasional Bhd (PNB) is the ultimate owner of both entities.
Based on its scenario analysis, HLIB said the proposed acquisition is expected to raise SP Setia's RNAV per share by 14%, assuming 30% of RM3.75 billion to be funded by equity via right issue and gearing would increase to 0.28 times from 0.17 times currently.
The research house upgraded SP Setia to a "buy" call, with a higher target price of RM3.97, from RM3.29 previously, based on its impending accretive major corporate exercise and long-run synergy.
"We believe investor's sentiment towards SP Setia would improve as the proposed acquisition of I&P is expected to be (RNAV) accretive, synergistic in the long run and potentially become the largest pure property player in the market. Consistent dividend yield of 5% is another positive point," it added.
On a separate note, PublicInvest Research said it is positive on the deal as it would fast track SP Setia's landbank expansion plan and potentially enhance its market capitalization to be included as one of the FBM KLCI component stocks.
Furthermore, it said with the proposed acquisition cost for I&P only constituting 9%-10% of the estimated gross development value (GDV), it believes the deal should be value-accretive.
PublicInvest maintained its "outperform" call on SP Setia, with a higher target price of RM4.15, from RM3.70 previously, pegged at a narrower 15% discount to RNAV.
"We still favor SP Setia for its sizable and well located landbank, consistent performance, good earnings visibility and decent dividend yield," it noted.
Nevertheless, HLIB said it is slightly negative on the group's proposed Bangi land acquisition as the projected net present value (NPV) is less than the price tag of RM492 million (including the cost for profit sharing) and potentially dilute its RNAV by 1.4% even though the land is strategically located near to major highways and existing SP Setia projects.
"Besides, the effective land acquisition cost for the development is circa 20% of the GDV of RM2.47 billion and may potentially increase by another 10-15% for the conversion premium on land title to commercial land," it said.