Investment Highlights

• We maintained our HOLD recommendation on S P Setia with an unchanged fair value of RM2.39 based on a conservative 45% discount to RNAV (Exhibit 4). We made no changes to our FY19–FY20 numbers and introduce FY21 net profit forecast at RM462mil.

• S P Setia chalked up an FY18 net profit of RM671mil (-25.8% YoY). Excluding exceptional gains, its core net profit of RM247mil (-68.2% YoY) is within our expectation. The lower revenue and earnings in FY18 were mainly due to the early stage of construction of ongoing developments.

• S P Setia recorded new sales of RM5.12bil, which exceeded its target of RM5.0bil for FY2018. Local projects contributed RM4.12bil – approximately 80% of sales – while the remaining 20% are from international projects.

• For FY19, S P Setia plans to launch projects with a total GDV of RM6.8bil, comprising RM6.66bil from local projects while international launches comprised new phases in Eco Lakes and Eco Xuan in Vietnam amounting to RM139.0mil. The local launches will be concentrated in the central region with a planned GDV of RM4.98bil. These include new projects from I & P landbanks such as Setia Alaman, Setia Mayuri in Semenyih, Setia Tropicale in Salak Tinggi and newly-acquired landbanks in Cyberjaya i.e. Setia Safiro. Meanwhile, the company’s unbilled sales of RM12.32bil will be progressively recognized over FY19-FY21.

• We expect core net profit to improve by 43% to RM352.9mil in FY19, driven by higher sales due to a stamp duty waiver, inventory clearing efforts and lower interest expenses as a result of repayment of borrowings from the sale of Battersea Phase 2 commercial assets. We expect FY20 earnings growing to RM402.8mil with additional earnings recognition from Battersea Phase 2 residential at the end of FY20.

• The company declared a final dividend of 4.55 sen per share, bringing the total dividend payout to 8.55 sen for FY18, representing a payout ratio of 70%.

• We believe the outlook for S P Setia remains stable premised on its strong unbilled sales of RM12.32bil and overseas contribution beginning 2020. However, as there is little upside potential, we maintain our HOLD recommendation.

Source: AmInvest Research - 28 Feb 2019