S P Setia Bhd (Nov 16, RM3.12)

Maintain hold with a target price (TP) of RM3.11: S P Setia Bhd (S P Setia) reported a cumulative nine months in financial year 2016 profit after tax and minority interest (Patmi) of RM383 million, accounting for 59% and 57% of Hong Leong Investment Bank’s and consensus estimates, respectively.

We expect stronger fourth quarter FY16 (4QFY16) earnings with handover of the Parque Melbourne (RM695 million) in 4Q16, Eco Sanctuary (completion by end-2016) and part of Phase 1 of Battersea Power Station. There are no comparative figures for the year-on-year due to a change of the financial year end from October to December.

Revenue increased by 25% mainly due to higher contribution from ongoing property development. However, Patmi only improved by 7% due to a higher tax rate of 41% (mainly due to a delay in taxation from the previous year).

New sales increased by 18% quarter-on-quarter to RM942 million (versus RM799 million in 2QFY16), mainly driven by Setia Eco Templer, Setia Alam, Setia Ecohill and Bukit Indah. For the 10 months ended Oct 16, sales achieved RM2.4 billion, accounting for 70% of full-year sales target of RM3.5 billion. Management remains confident of achieving its full-year sales target in view of the strong take up of ViiA Residence and Setia Sky Seputeh, coupled with RM1 billion worth of launching for the rest of the year.

The recent launch of ViiA Residence (gross development value [GDV]: RM407 million) and Setia Sky Seputeh (GDV: RM458 million) witnessed commendable take-up rates of 45% and 30% respectively, given its lifestyle and strategic location.
S P Setia had delayed launching some of its apartments (such as Trio by Setia (GDV: RM220 million) in Klang and replaced with mid-price range landed properties and retail lots.

For the remainder of the year, S P Setia will launch RM1 billion worth of projects including a condo at Setia Sky Ville, three-storey terrace houses and semi-detached houses in Setia Alam, Rumah Mampu in Setia Eco Gardens and retail shops in Setia EcoHills.

It is currently trading at close to average price/revalued net asset valuation (P/RNAV) band with consistent dividend yield of 4%. Potential upside would emanate from further land banking activities and potential opportunities for mergers and acquisitions.

Maintain “hold” with a TP unchanged at RM3.11 based on unchanged 35% discount to RNAV of RM4.78. — Hong Leong Investment Bank, Nov 16

This article first appeared in The Edge Financial Daily, on Nov 17, 2016. Subscribe to The Edge Financial Daily here.

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