S P Setia leaving the competition behind

S P Setia Bhd (Dec 13, RM3.09)
Maintain trading buy at RM3.15 with a revised target price of RM3.99 (from RM4.30): S P Setia’s final results were in line with our forecast, with net profit coming in just 2% above it but beating consensus by 13%. New sales of RM4.2 billion for financial year 2012 ended October (FY12) were 5% ahead of the company’s RM4 billion target, which is quite a feat as it is unprecedented for the sector.

We scale back our earnings per share forecasts and realisable net asset value (RNAV) to factor in the proposed 15% private placement. We retain our “trading buy” call and target basis of parity with its RNAV. S P Setia is not an “outperform” due to election risk. Potential rerating catalysts include:

(i) this set of results;
(ii) the successful launch of the Battersea project in London; and
(iii) record new sales and profit in FY13.

Core net profit for FY12 rose 32% to a record RM394 million as S P Setia locked in RM4.23 billion in new sales, a 29% increase. Some 44% of the sales came from the Klang Valley, 32% from Johor, 10% from its Fulton Lane project in Melbourne, 6% from Penang, 5% from Singapore and most of the remaining 3% from Sabah.

Unbilled sales stand at RM4.44 billion. The final dividend of nine sen brings the full-year dividend to 14 sen, below our 16 sen forecast. For FY13, it is targeting to sell RM5.5 billion worth of properties, of which roughly RM4 billion will be from Malaysia and most of the rest from Battersea.

Phase 1 of the Battersea Power Station project, with a gross development value (GDV) of £1 billion (RM4.92 billion), has seen overwhelming response. The group believes the project could sell 600 to 800 of the 800 units available within six months of the launch, starting in January 2013. Besides launching in London and Kuala Lumpur, S P Setia is also planning to launch the project in Singapore, Hong Kong and Brunei.

S P Setia has proposed to undertake a private placement of 15% of its paid-up capital. Proceeds from the placement will be used for working capital and landbanking purposes. Dilution from the placement and the updating for FY12 results lower our RNAV by 8% to RM3.99. — CIMB Research, Dec 13

This article first appeared in The Edge Financial Daily, on Dec 14, 2012.