S P Setia Bhd (May 15, RM3)
Maintain outperform with a target price (TP) of RM4.50: S P Setia Bhd’s first quarter of financial year 2018 (1QFY18) net profit came in weaker than expected at RM61.5 million (-44.2% year-on-year; -78% quarter-on-quarter). The 1QFY18 net profit only constituted around 10% and around 9% of our and consensus full-year estimates. The earnings disappointment was mainly due to slower-than-expected billings, higher operating costs from higher interest, selling and marketing expenses, and other administrative and general expenses. All in, the costs were higher from integration of I&P Group Sdn Bhd and S P Setia, and hence, earnings were negatively impacted as revenue billings were not as fast as expected.
As such, we adjust our FY18 to FY20 earnings estimates by -23%, -6% and -6% respectively to account for these factors. In the first quarter, new sales clinched were RM1.1 billion, or 22% of the FY18 sales target of RM5 billion. Unbilled sales rose slightly to RM7.95 billion from RM7.71 billion in 4QFY17. We expect the group’s earnings to recover gradually this year with full recovery in FY19, underpinned by contributions from overseas projects. We maintain our “outperform” call with an unchanged TP of RM4.50, pegged at around 25% discount to RNAV.
In 1QFY18, the group netted sales of RM1.1 billion, with RM635.6 million from local projects and the remaining from overseas. Sales from the central region were RM178.5 million while the southern and northern regions contributed RM357.1 million. As for overseas projects, the Australian market contributed RM447.9 million, mainly from UNO Melbourne, which saw 41% of its 486 launched units sold. Elsewhere, we understand that its other launches, especially the Starter Home series, were also well received.
Going forward, it will launch projects worth around RM5.57 billion with a focus on mid-range landed properties in the Klang Valley, but will continue to be cautious on high-rise properties. As for overseas projects, it will unveil Daintree Residence at Toh Tuck Road, Singapore, which has a gross development value of S$480 million (RM1.42 billion) (expected 3QFY18). — PublicInvest Research, May 15
This article first appeared in The Edge Financial Daily, on May 16, 2018.