SP Setia, Hostile Takeover, Say Analysts

KUALA LUMPUR, Sept 29 (Bernama) — Malaysia’s largest state asset manager, Permodalan Nasional Bhd (PNB)’s bid to take over property developer SP Setia Bhd, is deemed as hostile as the minimum 50 per cent acceptance is easily achievable.

“PNB’s mandatory general offer at RM3.90 (a share is) taking advantage of week market sentiment, 50 per cent acceptance is likely achievable with Kumpulan Wang Pesaaran and Employees Provident Fund collectively having 18 per cent stake,” said HwangDBS Vickers Research today.

PNB now has 33.17 per cent, which triggered the mandatory offer, SP Setia founder Tan Sri Liew Kee Sin holds 11.26 per cent and SP Setia foreign shareholding now stood at 21 per cent.

HwangDBS said PNB’s offer to SP Setia was at a discount of 24 per cent to the revalued net asset value (RNAV) of RM5.11 and took advantage of the current weak market sentiment.

“The 11 per cent premium over the last traded price offer is lower than the 14-31 per cent range seen for previous privatisation/merger and acquisition exercises in the Malaysian property market,” it said in its research report.

SP Setia’s board of directors (BOD) view the offer as unattractive and are seeking for a competive bid or higher offer from PNB, it said.

Hong Leong Investment Bank also echoed SP Setia’s BOD view.

“We agree with the BOD that the offer price of RM3.90 significantly undervalues the company as it is at a 15 per cent discount to our RNAV estimate of RM4.58, and appears unattractive versus the street target price range of RM4.12 and RM5.41,” it added.

Long-term investors who believe in the intrinsic value of the company should not accept the offer despite the premium to current share price.

Investors who have not sold out of SP Setia, amid, all the external fears should stick to their conviction, it added.

The investment bank said the offer in the near-term was positive, given that there was a good chance of a better offer price materialising, which in turn may drum up merger and acquisition excitement.

HwangDBS said the challenge for SP Setia to seek a better bid is that the company’s outlay, the entire SP Setia, is valued at RM7.1 billion.

Therefore, ECM Libra Investment Research said the takeover offer presented an opportunity for investors to exit at upcycle valuations as it valued SP Setia at equity value of RM6.94 billionn and price multiples of 2.1 times book and 19.8 times earnings based on our existing 2011 financial year estimates.

“When compared to our RNAV estimate of RM3.98, we view the offer fair as just being two per cent below the full intrinsic value,” it said.

In the absence of a competing offer, ECMLibra advised investors to accept the takeover offer as it represented an opportunity for investors to exit SP Setia at up-cycle valuations.

“The offer is also attractive now, given the current condition where equity market risk aversion is pervasive while the property sector may potentially enter a cyclical downturn due to weakening economic outlook, deteriorating housing affordability and policy risks,” it said.

HwangDBS said PNB could be using SP Setia as a vehicle to consolidate all its property development business, namely, Pelangi Bhd, Island and Peninsular, Petaling Garden and Sime Property — potentially making SP Setia the biggest developer by market capitalisation, landbank and sales.

Of a bigger concern, however, is whether Liew will be still around to run the show and how significant his stake will be, which could put SP Setia’s premium valuation at risk.

“PNB has less than impressive track record in property development as Island and Peninsular and Sime Property used to trade at a large discount to RNAV (prior to privatisation) and are regarded as a sleeping giant,” it added.


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