PETALING JAYA: S P Setia Bhd’s proposed rights issue of new class C Islamic redeemable convertible preference shares (RCPS-i C) is set to allow the group to refinance existing preference shares at a lower rate.

       The property developer, which plans to raise RM1.18bil from the exercise, intends to utilise the proceeds to redeem all outstanding RCPS-i B, which were issued in December 2017 and to repay borrowings.

       As at April 8, 2022, it had 1.18 billion RCPS-i B amounting to RM1.04bil in issue.

       TA Research in a report yesterday said it was not surprised by the proposed corporate exercise, as it will allow the property developer to take advantage of the current low interest rate environment.

       It noted that the RCPS-i B also provides for an annual stepped-up preferential dividend rate of 1%, above the expected preferential dividend rate of 5.93%.

       “Upon the fifth anniversary of the issue date, the preferential dividend rates would be excessive, amid the current low interest rate environment and could be damaging to the group’s long-term growth and expansion objectives.

       “We are keeping our 2022 to 2024 earnings forecast unchanged at this juncture, pending the finalisation of the rights price and distribution ratio.”

       MIDF Research also said it is maintaining its near-term earnings forecast for S P Setia.

       “We make no changes to our earnings forecast for 2022 and 2023 as the proposed rights issue is not expected to materially impact earnings of S P Setia.

       “Meanwhile, the proposed rights issue is expected to increase the enlarged share base of S P Setia. Nevertheless, the dilution impact can only be determined later as conversion ratio for the RCPS-i C have not been determined.”

       Kenanga Research said it is keeping its 2023 earnings forecast for S P Setia unchanged, given the negligible savings of RM5mil from the corporate exercise.

       “The exercise is to be completed by end-2022, hence there will be no impact to 2022 numbers,” it said.

       CGS-CIMB Research, meanwhile, said it is retaining its “add” call on the stock, with an unchanged target price of RM1.84.

       “We like S P Setia for its strong 2022 earnings per share growth due to the handover of overseas projects.”

       The research house said S P Setia’s massive landbank would also allow the group to cater to changes in consumer preferences.

       CGS-CIMB noted also that S P Setia had a cheap 2022 to 2024 valuation of 0.4-times price-to-book value, which is below its peers’ of 0.49-times.

       “Stronger earnings delivery in 2022 and undemanding valuations are the key potential re-rating catalysts. Further deterioration in Malaysia’s property market is a key downside risk to our call,” it said.