Investment Highlights

• We reinitiate coverage on S P Setia with a HOLD recommendation, pegging a fair value of RM2.39 (Exhibit 2). We expect the company to register core net earnings of RM263.6mil, RM352.9mil and RM402.8mil for FY18, FY19 and FY20 respectively.

• S P Setia is one of the leading property developers in Malaysia with a portfolio that comprises townships, ecosanctuaries, luxury enclaves, high-rise residences, commercial and retail as well as integrated mixed developments. At present, the company has numerous ongoing projects with a remaining landbank of 10,366 acres bearing a total GDV of RM186.2bil (Exhibit 2), giving it long-term earnings visibility.

• S P Setia’s developments are mainly concentrated in the central region of Peninsular Malaysia with 53% of the total undeveloped landbank and 55% of the total remaining GDV.

• The group has also ventured into international frontiers such as Vietnam, Singapore, Australia, China, Japan and the United Kingdom. S P Setia has an effective undeveloped landbank of 309 acres with a remaining GDV of RM20.2bil.

• The acquisition of I&P Group in 2017 provided access to wider markets with an additional landbank of more than 4,200 acres. The close proximity of I&P landbanks to S P Setia’s developments in the Klang Valley and Johor Bahru will provide more flexibility for the company to unlock the value of these landbanks.

• As of 9MFY18, S P Setia has launched projects with total GDV amounting to RM4.64bil while another RM1.6bil is planned for the remaining months of 2018, bringing the total GDV to RM6.24bil for the year. Meanwhile, the company’s unbilled sales of RM7.92bil will be progressively recognized over FY19-FY21.

• In the short-to-medium term, the property market remains subdued with many potential buyers having difficulty in obtaining loans due to their already high debt service ratios. Meanwhile, a lack of overseas contributions and slow progress billings from local projects are the key factors for weaker earnings in 2018. Moreover, management noted that there was no evident pick-up in sales during the month of October 2018 and conditions remain challenging. As such, we expect the company to register core net earnings of RM263.6mil for FY18, 66% lower YoY, with RM352.9mil and RM402.8mil for FY19 and FY20 respectively.

Source: AmInvest Research - 4 Dec 2018