What’s Up? SP Setia

SP Setia

What’s Up (1)? … dated Jan 2011

Sources say SP Setia is likely to get a 30-year concession to build and operate the Penang International Convention Centre It has emerged as the leading contender to build the Penang International Convention Centre (PICC) on the grounds of the Penang International Sports Arena ( Pisa ).

According to sources, SP Setia is likely to get a 30-year concession to build and operate the convention centre, which will include other components like a hotel and retail outlets.

The proposed project is likely to cost over RM200 million.

Another source said SP Setia is one of four companies which had responded to a request for proposal from the Penang state government. The Penang Island Municipal Council had closed the tender in September 2010.

The other companies said to be in the running are Singapore-based exhibition contractor Pico Global Services Ltd, which has operations in Malaysia , and a host of local contractors.

Pisa is an indoor sports arena located close to Penang international airport.

The project was completed in 2000 and serves as the largest and most comprehensive multi-purpose indoor venue on Penang Island .

The arena, which is owned by the Penang Island Municipal Council and managed by Penevents Sdn Bhd, boasts an Olympic-sized swimming pool and a spacious air-conditioned area, which has been designed to host conventions, exhibitions and entertainment shows, along with major sporting events.

A source said that if SP Setia succeeds, it plans to build a public rooftop park in the convention centre building.

The proposed PICC, which was initially tagged at RM50 million, has been mired in controversy ever since Penang Chief Minister Lim Guan Eng proposed it. One of the concerns raised was that the project would incur huge expenditure, which could result in the council becoming insolvent.

SP Setia's entry into Penang dates back five years to its maiden development " Setia Pearl Island " in Sungai Ara near the Penang international airport. The project, which is sited on a 45.2ha of land, serves as the company's flagship project in Penang .

Since then, SP Setia has made its mark in several other property projects dotting the island and these include high-end landed properties in the upscale Jesselton neighbourhood and an upcoming exclusive condominium project facing Penang 's famed promenade, Gurney Drive .

The company is said to be aggressively in expansion mode to increase its landbank in Penang .


What’s Up (2)? … dated Jan 2011

In late Sept 2010 that SP Setia might be acquiring one of the largest pieces of prime land in Bangsar, KL.

The report, quoting Ministry of Health deputy director general Datuk Maimunah, said the six research centres of the Ministry’s Institute for Medical Research would be brought together under one roof as the 1NIH integrated complex, which would be built in Setia Alam, Shah Alam, a 2500 acre township being developed by SP Setia.

This would mean that several thousnad ministry staffers will soon be shopping there, thus benefiting the shops and retail outlets in the township. The icing on the cake, however is that the government will swap the 1MR land in Jalan Bangsar for the land and construction of the 1NIH is Setia Alam by the SP Setia group. This way, the cost for the integrated complex will not appear as a cost in the federal budget.

SP Setia offered the government a parcel of land in Setia Alam where it would build the proposed 1NIH at a cost of rm600 million to rm700 million.

It is believed that SP Setia won the bid through a consortium that includes one or two partners.

However, SP Setia is not expected to develop the 1MR land soon, because the company will have to build new facilities for the six research institutes in Setia Alam to make the move possible. The company will need to draw up a master plan for the development and submit it for approvals.

Furthermore, SP Setia will be kept very busy by its existing projects. SP Setia is also developing the KLEC project on a 24acre tract estimated to have a gross development value of rm6 billion.

The Bangsar 1MR land is expected to be eventually developed into an integrated complex of residential and high rise office buildings to make good use of the valuable piece of land.


What’s Up (3)? … dated Dec 2010

There is expectation that the spate of recent (Nov 2010) proposed mergers will unleash another slew of merger activities among other industry players to avoid being left behind in the race to be bigger and better.

Potential targets could be those with large prime land bank in Kuala Lumpur with shareholders that hold concentrated stakes.Those who fit these descriptions include Sime Darby and SP Setia Bhd owned by Permodalan Nasional Bhd (PNB).

Presently, PNB is the major shareholder of SP Setia with a 32.9% stake. PNB also owns unlisted property assets I&P Bhd,Petaling Garden Bhd and Pelangi Bhd as well as Sime Darby Property Bhd via its 52% stake in Sime Darby. PNB also has a 22% stake in Mah Sing Bhd.

Currently, Sime Darby has one of the largest landbanks in the country. Its subsidiary Sime Darby Property Bhd owns 3,653 ha of development properties in Selangor and Kuala Lumpur . It also has 5,022 ha of development properties in Australia and China .

A merger between Sime Properties and SP Setia will see an even bigger creation.

In 2009, market speculation was rife that SP Setia was keen on acquiring PNB’s wholly owned subsidiary I&P as well as PNB two other property companies … Pelangi and Petaling Garden. SP Setia CEO then came out to say that it had no plans to buy the three companies and instead would seek to collaborate with them to develop land in the southern Johor.

The speculation did some have merit. PNB could have used a vehicle to house all its property interests, which would have helped improve its brand and economies of scale. Moreover, SP Setia has a number of government linked funds among its shareholders. These funds hold a collective stake of about 46% of the company.

With the UEM Land, Sunrise deal rocking the local property scene, speculation has again surfaced that a SP Setia may be a target of some of sort of partnership.

SP Setia has long been favored by investors for its liquidity, solid management, undeveloped landbanks of 3848 acres as at Oct 2010 and strong earnings.

So now what lies ahead for SP Setia?

No It Will Not Happen …

With SP Setia having a market cap of RM5.2 billion, trading at 2.5 times book and a PER of more than 22 times. Any proposed acquisition of the company will be expensive. It is more likely that SP Setia would be an acquirer than a target, unless a foreign player decides to buy into the company.

On the other hand, purely from a valuation perspective, SP Setia could buy anyone in town without seeing the same dilutive effect, provided that the target has fairly decent earnings.

The source also says the only reason SP Setia would enter into a M&A with another property company would be if the price was right and the parties were friendly, or that its major shareholders had big plans.

There is less of a push for an established corporate to enter into a partnership or buy into a partnership because it is already generating everything internally with a strong team, as well as having ample resources and landbank.

Yes It Will …

The deal would provide it SP Setia with a landbank for the next 20 year. A merger of interests would enable Sime Darby to tap the expertise of SP Setia in the development of premium products. It could be in the form of Sime injecting its landbank into SP Setia in exchange for shares. PNB itself could put its property assets into SP Setia as well as PNB onws two property development companies, Pelangi and Petaling Garden .

PNB recognise that while it is the largest shareholder in SP Setia, it could be overshadowed by its peers after their mergers. It is in PNB interests to ensure that SP Setia remains the dominant property company.