Losing its competitive edge?

Business & Markets 2013
Written by CIMB Research
Tuesday, 21 May 2013 10:24
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S P Setia Bhd
(May 20, RM3.75)
Downgrade to neutral at RM3.75 with a target price of RM3.99: S P
Setia’s position as Malaysia’s top developer is under threat with the
likely departure of its CEO Tan Sri Liew Kee Sin. Although there is a
succession plan in place, Liew is, in our view, irreplaceable and we
could see more erosion of the company’s valuation premium.
Given the uncertain prospects due to management and execution risks,
we downgrade S P Setia from trading “buy” to “neutral”. No changes to
our valuation basis of parity with revised net asset value.
We are lowering 2013 financial year (FY13) to FY15 earnings per share
by 1% to 11% to factor in the cost of the long-term incentive programme
which could amount to RM80 million to RM90 million as well as the shift
to lower margin products.
For exposure to the property sector, we prefer MAH SING GROUP
BHD [] and UEM LAND HOLDINGS BHD [].
In March 2013, S P Setia’s board named its deputy president Datuk
Voon Tin Yow as the successor to Liew when he retires. Its CFO Datuk
Teow Leong Seng was named Datuk Voon’s successor as deputy
president. In April, Liew exercised a second put option which cut his
stake in S P Setia from 4.6% to 2.76%. His put option for the third and
final tranche is due in March 2014 and we believe he may retire around
that time.