De-gearing is currently S P Setia Bhd's top priority, according to RHB Research.

The firm believes that the handover of a few projects in Melbourne and Singapore, as well as the potential completion of some land disposals, will help reduce S P Setia's net gearing to 0.51 times to 0.53 times by year's end, down from 0.61 times currently (including non-controlling interests).

It stated in a note today that during a recent meeting with S P Setia's head of IR, it was revealed that Sapphire and UNO in Melbourne, which will be completed in the third quarter of 2022, and Daintree Residence in Singapore, which will be completed in the fourth quarter of 2022, should help to reduce RM1.5 billion to RM1.6 billion in debt from the company's total borrowings of RM12.6 billion.

According to the firm, S P Setia's management has also indicated that it may re-finance the existing Islamic redeemable convertible preference shares RCPS-i B (worth RM1.04 billion) on December 22, after the fifth anniversary.

The current coupon rate for this tranche is at 5.93 per cent, and the firm feels S P Setia is at an advantage to ride on the current low-interest-rate cycle to re-finance it at a lower rate.

This should help to reduce S P Setia's total preferential dividend payment to both RCPS-i which amounted to RM130 million per annum if it materialises, it said.

RHB Research anticipates that S P Setia's financial position will gradually improve in the second half of the year.

It also believes S P Setia is on track to meet its RM4 billion sales target, thanks to RM4.25 billion in launches, 65 per cent of which are landed properties.

The stock has been upgraded to "buy" from "neutral" by the research firm, and the target price has been raised to RM1.48 from RM1.28.

The firm stated that the ongoing sale of non-core landbank and strategic plots within its township developments should help S P Setia further reduce its gearing and accelerate the value unlocking of its land bank.

S P Setia announced in May 2021 that it would sell 959.7 acres of land in Johor to Scientex Bhd for RM518.1 million. The land sale, which will be completed in stages, is currently awaiting approval from the Economic Planning Unit.

According to the research firm, S P Setia is also talking with a few corporates and a logistics company about selling some commercial land plots in Setia Alam Impian.

Regarding the new land acquisition, the firm stated that S P Setia is looking to replenish its land bank in Melbourne, as existing projects will be completed this year.

"We are not concerned over the potential funding as the accumulated profits generated in all S P Setia's past projects in Melbourne should help to finance the new land," it said.