SP Setia: Hold, target price RM4.46

ECM Libra Investment Research has downgraded SP Setia Bhd's (8664) stock to a "hold" recommendation on its belief that the stock is currently fairly valued.

The company has a target price of RM4.46, based on upper-end price-to-earnings (PE) valuation of 20 times on current year 2011 earnings.

"While earnings visibility in the near term is underpinned by strong sales of RM1.8 billion achieved during the first nine months of financial year 2010, there is heightened risk of slow down in sales going forward due to potential imposition of mortgage lending restriction by Bank Negara Malaysia," the firm said.

ECM Libra said the property developer's acquisition of a 103.6ha plot in Johor Baru for RM169.3 million seemed pricey, but reasonable.
It opined that from the management's gross development value (GDV) estimates of RM1.5 billion, it looks as though SP Setia could be launching a combination of high-end and/or high-rise properties.

"Looking at land cost as a proportion of GDV, the acquisition price seems reasonable, as it makes up only 11 per cent of GDV, which is inline with existing projects in Johor," ECM Libra said.

The project, which will replenish diminishing landbank at Setia Indah, Johor Baru, is expected to be launched by end 2011 and spans over a development period of about eight years.