SP Setia where is the limit?

SP Setia - When I put this as my best pick for a 6 month hold, I am sure most would have gone into the warrants. That would have chalked up a return of more than 100% in less than 2 months. If you wish to hold or buy more, indications are still good for further upside. Sometimes good memory will get you to keep 100% gain but lose out on 200% gain. Despite the recent surge, indicators still good for a trade or hold.

Klang river project (potential beneficiaries: SP Setia (Buy; TP RM4.80), YTL Power (Hold; TP: RM2.50), MRCB).

The drive to improve Kuala Lumpur’s attractiveness would also benefit large landowners in the greater KL area such as SP Setia, Bolton (Buy; TP: RM1.50) and DNP (Buy; TP: RM2.25).


The market may have under-appreciated the deep embedded value of Eco City, given current bearish consensus view on condominium and office space due to oversupply concerns. The soft launch of three boutique office buildings (net saleable area: 720,000sq ft) and one signature office tower (NSA: 300,000 sq ft), with a combined GDV of RM1.05bil, has been well received despite the premium pricing of RM1,000psf. Not many even know what the Eco City is all about - imagine Mid Valley, multiply by 3x and add in a substantive residential element as well.

The under appreciation is due to the supply picture. About 14 million sq ft of purpose-built office space is in the pipeline in Kuala Lumpur between 2010 and 2013. This is worrisome as only 1.8 million sq ft of new office space is absorbed every year. To make things worse, the government recently announced the plan to build a 100-storey tower in ‘Warisan Merdeka’ and to develop the RM26bil Kuala Lumpur International Financial District near Jln Tun Razak. Further to that, the completion of the KL International Financial District would mean some re-location of other financial institutions from existing buildings, which should mean more vacant space in the market.

It is easy to be over optimistic and take the mantra "If You Build, They Will Come" as the rally cry. However, the big development is on the opposite side of Federal Highway and links Bangsar, KL city and PJ easily - you cannot find a more lucrative site for an integrated commercial residential mega development. Knowing that they themselves lack a suitable track record in such big planning works, S.P. Setia has entrusted Jerde Partnership as the master planner for this development. Jerde, based in Los Angeles, US, is a world-renowned architect and master planner for integrated mixed-use commercial and residential development. Its high profile projects include Namba Parks in Osaka, the wonderful Roppongi Hills in Tokyo, Zlote Tarasy in Poland and Kanyon in Turkey.

SP Setia is trading at a 25% discount to the fully diluted NAV of RM6.80 – which is unjustified given its solid track record and the most liquid property stock in the market. Tack in the Eco City and potential involvement in RRI-Sungai Buloh and maybe even the 100 storey tower by PNB, you have liftoff.

When you consider the excellent merger between Sunrise and UEM Land, there are a host of possibilities of something of that nature happening to SP Setia. You can do the possibilities especially with PNB and EPF running the ship at SP Setia.