SP Setia (RM4.20; Buy; Price Target: RM4.80; SPSB MK)

Sales on track

SP Setia (SPSB) has achieved RM935m sales for the first five months of FY10 - on track to achieve its RM2b annual sales target (47% to date). Unbilled sales currently stands at RM1.7b (1.4x FY09 property development revenue).

Mar 10 sales of RM175m was up 15% m-o-m, as Feb 10 was affected by the long Chinese New Year break. Mar 10 was slightly lower than the average monthly sales of RM203m achieved in 1QFY10 which saw a knee-jerk reaction to the introduction of a new incentive package ie Best-for-the-Best (incorporating earlier 5/95 financing scheme) in Oct 09.

With RM327m sales in the bag for Feb-Mar 10, we expect 2QFY10 to be a reasonably strong quarter, although could be potentially lower than 1QFY09’s RM608m and 2QFY08’s RM553m. We do not discount the possibility of a rush to buy as its Best-for-the-Best financing package will be expiring in Apr10.

Even if Best-for-the-Best is not extended, we expect sales to remain robust driven by improving economic outlook and inflation hedging (especially with the introduction of GST in the near future). Property sales have remained resilient despite recent uptick in interest rates (historically low correlation anyway) and less attractive financing packages by banks/developers. Average selling prices have also been increasing steadily which should lead to stronger margins.

Maintain Buy and TP of RM4.80, based on 20% discount to RNAV of RM5.95. Potential catalysts:

a) Launch of RM6b KL Eco-City commercial project in Aug10 (just opposite the successful Midvalley), and
b) New landbank acquisitions including participation in government land redevelopment given its strong balance sheet and brandname.

Public Bank-F (RM12.08; Hold; Price Target: RM12.20; PBKF MK)

Strong as expected

• 1Q10 result inline with our and street estimates.
• FRS 139 impact increased reserves by 2.4% mainly from the recognition of interest income based on the Effective Interest Rate method.
• Maintain Hold; TP raised to RM12.90 as target base is rolled forward to FY11. Decent 4-5% dividend yield supports stock.

Petronas Dagangan (RM9.10; Fully Valued; Price Target: RM8.10; PETD MK)
Pedestrian earnings outlook
• On track to meet FY10 forecast earnings
• Expect pedestrian earnings outlook in FY11-12
• Valuation is rich; Maintain Fully Valued with RM8.10 TP