S P Setia Bhd
(Feb 13, RM2.83)
Maintain outperform with a reduced target price of RM3.85: We caught up with management recently to discuss a few issues, including the progress of key projects, project sales and most importantly, day-to-day operations after the recent movements of senior management and staff.

Permodalan Nasional Bhd (PNB), which is currently the largest shareholder, appears to be taking a hands-off approach for now with representation only at the S P Setia board level, but we believe more clarity on the game plan that PNB has for S P Setia will surface only after April (the expected departure date of president and chief executive officer Tan Sri Liew Kee Sin).

The recent announcement of management changes still leaves unanswered questions, such as whether the current successors will stay (as many are aligned with Liew) and whether PNB will have its own nominees to lead the group. We believe the clouds of uncertainty will lift by the first half of 2014, after Liew’s departure.

As for the concerns over a staff exodus, management reassures us that there are no major hiccups in the daily operations, given the group’s established business systems. Also, we believe S P Setia’s projects are mostly at a launch-ready stage, which are easier to implement. The difficult ones are those in the infancy stage.

We are of the view that PNB’s investment of more than RM4.5 billion is a good reason to believe it has every motivation to unlock existing asset value and safeguard the good work done thus far.

We maintain our “outperform” call but reduce our target price to RM3.85 with a higher 20% discount (from 10% previously) to revised net asset value of RM4.80, pending clearer direction from PNB.  — PublicInvest Research, Feb 13

This article first appeared in The Edge Financial Daily, on February 14, 2014.