S P Setia Bhd (June 10, RM3.36)

Maintain buy with unchanged target price of RM4.07: S P Setia’s results for the second quarter ended April of financial year 2015 (2QFY15), to be released this month, are likely to come within expectations. We estimate that 2Q net profit could come in at RM200 million to RM220 million, lifting first half FY15 net profit to RM311 million, meeting 48% of our FY15 estimate.

We understand S P Setia has been handing over its Australia project — Fulton Lane in Melbourne — to buyers since end-December last year and most of the earnings will be recognised in 2Q and 3QFY15.

As at end-March this year, S P Setia has locked in new property sales of RM1.55 billion, meeting just 34% of its sales target of RM4.6 billion for FY15. Of this RM1.55 billion, 56% is from Battersea Power Station (BPS) Phase 3, while the remaining is derived from its Klang Valley and Iskandar Malaysia developments. BPS Phase 3 sales have come in below expectation due to cautious buying mood ahead of the election in the UK. We cut our FY15 locked in sales assumption by 13% to RM4.06 billion to factor in the slower-than-expected take-up rate of BPS Phase 3.

S P Setia remains our only pick for the property sector. We like its strong locked in sales and 4.6% net yield. — Maybank Investment Bank Research

This article first appeared in The Edge Financial Daily, on June 11, 2015.

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