Kenanga reaffirms buy on SP Setia (ext: Edge)

KENANGA Research has reiterated its buy recommendation on SP Setia at RM3.70, pegging its fair value at RM4.25, saying that the company had the ability to adapt to tough market conditions via its diversified earnings and strong balance sheet.

It said SP Setia, which has 0.19 times net gearing and RM572 million cash balance, was likely to be one of the stronger property outperformers during a sector run, given its market leadership qualities, large market capitalisation of RM3.8 billion and strong branding amongst local and foreign institutional investors.

The research house said SP Setia's sales and purchase agreement (SPA) sales in 1H09 of RM521 million accounted for 47% of its full-year target of RM1.1 billion, with townships in the Klang Valley and Johor Bahru making up 83% of the 1H09 sales values.

"No doubt 1H09 sales values fell by 39% year-on-year, but we are glad that management has rightly guided FY09 sales target and is delivering within expectations," Kenanga said in a note.

The research house said potential earnings catalysts for SP Setia, on the back of economic recoveries, were Permodalan Nasional Bhd property units’ assets injection or on land basis JV, conclusion of the Lend Lease deal on Setia City, more land acquisitions and KL Eco City.