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S P Setia - 2QFY2010 results (ECM LIbra) maintain buy; target price RM4.46

2QFY10 : No surprises

Within expectations
2QFY10 net profit came in at RM51.2m while 6MFY10 numbers were at RM89.4m. On an annualised basis, SP Setia’s results achieved 91% and 89% of house and consensus full year estimates respectively. We deemed the results to be within expectations as we expect 2HFY10 to be stronger. A first interim net dividend of 4.5 sen has been declared. We expect another 7 sen to be declared in 4QFY10 based on 60% dividend payout assumption
.
Margins improved but remain below trend
6MFY10 revenue and net profit were 19.1% and 24.7% higher respectively than corresponding period last year on the back of strong property sales. While EBIT margin remains below trend, it has improved from 14.2% in 6MFY09 to 16.5% as the effect of higher building materials
waned. On-going sales promotion expenses will however keep margin below 20% in the near term.

On track to achieve RM2bn sales target
Property sales continued to be strong in 2QFY10 at RM595m which was just a notch lower than the record RM608m achieved in 1QFY10 but 42% higher y-o-y. SP Setia is on track to achieve its RM2bn sales target as it has already achieved RM1.4bn for 7MFY10.

Maintain BUY
We maintain our BUY call and target price of RM4.46 based on upper-end P/E valuation of 20x on CY11 earnings. RNAV also remains unchanged at RM4.32. We like SP Setia for exposure to the landed residential property sub-segment which is currently in a sweet spot. Sales are expected to be strong amid accommodative interest rate environment and improving consumer sentiments.
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