S P Setia posts strong set of results

S P Setia Bhd (Dec 15, RM3.11)

Maintain buy with a lower target price (TP) of RM3.86: S P Setia Bhd’s 12-month period ended Oct 31, 2015 (12MFY15) results were positively surprising.

Year to date locked-in property sales are on track to meet its internal and our targets for financial year ending Dec 31, 2015 (FY15) (14 months with change in financial year end [FYE] to December).

However, we lower our sales expectation for FY16 by 38% in anticipation of a more challenging property outlook in 2016.

We adjust our FY15, FY16, and FY17 earnings forecasts by +3%, -5%, and -12% respectively. Our revalued net asset valuation (RNAV)-TP is lowered to RM3.86 (-21sen; 30% discount to RNAV). Maintain “buy”.

Due to the change in FYE from October, S P Setia will be reporting 14-month results ending in December 2015 — it has reported 12-month results with two more months to go.

Fourth quarter of 12MFY15 net profit was RM119.7 million (-9% year-on-year, [y-o-y], -54% quarter-on-quarter, [q-o-q]), lifting 12MFY15 net profit to RM710 million (+75% y-o-y), accounting for 99% to 100% of our and consensus 14-month earnings estimates — slightly above expectations.

We attribute the earnings gap to the stronger-than-expected progress billings at the Setia Eco Hill project.

Elsewhere, the 54% q-o-q decline in 4QFY15 (in 12MFY15) net profit was due to lumpy earnings recognition from its Fulton Lane project (in Melbourne), which was handed over during the February to July period.

As at end-October, S P Setia locked in new property sales of RM3.4 billion, meeting 86% of its 14-month sales target of RM4 billion for FY15, which was on track.

Unbilled sales remained healthy at RM9.5 billion as at end-October (2.7 times of our forecast FY16 revenue).

We adjust our FY15, FY16, and FY17 earnings forecasts to factor in stronger progress billings for Eco Hill phase 1, lower sales assumption of RM3.7 billion for FY16 (-38%) on slower take-ups, especially for its high-rise projects in Malaysia and Battersea Power Station phase 3.

We also expect Setia Federal Hill project to be launched by 2017 (from 2016).

Consequently, our RNAV estimate is lowered to RM5.52 (-5 sen). Our TP is based on a 30% discount (from 27%) to our RNAV estimate. — Maybank IB Research, Dec 11

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This article first appeared in The Edge Financial Daily, on Dec 16, 2015. Subscribe to The Edge Financial Daily here.