S P Setia (ECM Libra Research) maintain hold; target price RM5.20

· Within expectations
FY2010 results came in within house but above market expectations. SP Setia posted a record net profit of RM251.8m which was 47.1% higher yo-y. A final net DPS of 10.5 sen was declared. Total net DPS for the year was 15 sen with payout ratio at 61%, which were inline with expectations.

· Bottomline higher on gains from sale of hypermarket
FY2010 revenue of RM1,745.9m was 24% higher y-o-y, boosted by record sales of RM2,314m, of which RM1,537m came from Klang Valley alone.

Net profit of RM251.8m grew at a faster rate of 47.1% mainly due to gains from sale of Tesco hypermarkets in Setia Alam (3Q) and Bukit Indah (4Q). Although management did not reveal the quantum of the gain, we estimate it to be around RM80m. Unbilled sales of RM1,782m was also a record for the group.

· Reaping the benefits of maturing township
Sales contribution from township projects has been spectacular in FY10. SP Setia’s flagship projects, Setia Alam and Setia Eco Park, both contributed sales of RM1.2bn as it reaps the benefits of maturing townships. GDV has also been raised from its initial RM5bn to RM18bn currently. The group’s landbank now stands at more than 3,000 acres with
remaining GDV of RM36bn.

· RM3bn sales target set for FY2011
Despite just achieving what no other Malaysian developers have achieved, SP Setia is setting an even loftier sales target of RM3bn for FY2011. We believe sales growth will mainly be driven by its mega-scale commercial project KL EcoCity which will be launched in Jan or Feb 2011.

We understand management is currently working on en bloc sales of office towers which may be firmed up within the next 3 months. Besides this project, SP Setia will also launch Aeropod in 1HCY11, its second Vietnam’s project EcoXuan in 1HFY11 as well as its maiden project in Melbourne, Fulton Lane in early 2011. That said, despite a RM3bn sales target in FY11, earnings growth will only kick in from FY2012 onwards.

· Fairly valued
We maintain our hold call as we deem SP Setia is fairly valued at current valuation. We tweaked our FY11-12 estimates by 0.5% and 18.3% respectively and raised our target price slightly from RM5.00 to RM5.20 which is based on upper-end P/E valuation of 20x on CY11 earnings. RNAV is RM4.94. Re-rating catalysts going forward include
(1) landbank acquisitions, and
(2) stronger than expected sales.