SP Setia rises 2.54% on expectations it can withstand sectoral headwinds

KUALA LUMPUR (Jan 20): Shares of SP Setia Bhd (fundamental: 1.4; valuation: 1.2) rose 2.54% or 9 sen today to RM3.64, as analysts project the company will likely withstand downside risks to earnings and share price, amid a challenging market this year.

At market close today, the company saw 2.77 million of its shares traded. The stock reached an intra-day high of RM3.65, before easing to close at RM3.64, with a market capitalisation of RM9.24 billion.

Analysts have projected the property sector is expected to face a challenging market this year, as hopes of a pre-goods and services tax (GST) demand rally have been quashed by buyers’ wait-and-see attitude and tighter lending liquidity, which will unlikely abate in the first quarter of 2015.

Maybank Investment Bank Bhd, in a note, said it sees the overplayed pre-goods-and-services-tax theme, developers turning cautious, rising pressure on margins post-GST, and waning price catalysts, as factors that could limit upside for the property sector in 2015.

However, it has maintained its “buy” rating on S P Setia, with a target price (TP) of RM4.07.

“While there is still concern over S P Setia’s management succession plan, downside risks to earnings and share price are limited,” the note read.  

It was reported that SP Setia was left with a vacuum in leadership, after the departure of its former president and CEO Tan Sri Liew Kee Sin on April 30, 2014.

SP Setia’s then chief financial officer Datuk Teow Leong Seng, as well as deputy president and chief operating officer Datuk Voon Tin Yow, were supposed to helm the company into 2015, but both left last year.

Liew is currently a non-executive director of Bursa Malaysia-listed Eco World Development Group Bhd.

Meanwhile, Kenanga Research Sdn Bhd observed that the property cooling measures announced in Budget 2014, had stymied increase in property prices.

Kenanga have also trimmed their target prices (TPs) on property stocks, in view of earnings and sales downgrades.

It noted that developers are likely to see flat- to declining sales over 2015, and even affordable players will not be spared, meaning there is another one to two more quarters of earnings downgrades by consensus.

Nevertheless, its top pick is SP Setia, which it upgraded to “outperfrom” from “market perform” previously, premised on potential mergers and acquisitions news and bullet recognitions from its overseas projects.

It also increased SP Setia’s TP by 20% to RM3.95, from RM3.28.  

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)