Investment Highlights

• We maintain our BUY recommendation on S P Setia with an unchanged fair value of RM2.39 based on a conservative 45% discount to RNAV (Exhibit 1). We made no changes to our FY19–FY21 numbers.

• We met the company’s management for updates during a recent meeting. Despite the lacklustre property market in Malaysia, S P Setia believes that demand remains strong for owner-occupied landed residential properties in established township.

• The company’s most recent launches, Setia Safiro Phase A1 and Setia Mayuri Phase 1 were sold out during their launches in July 2019. Meanwhile, the launch of Clarino double-storey terrace houses priced from RM649,000 in the mature township of Alam Impian in March 2019 achieved a strong take-up rate of 98% within a month.

• S P Setia planned to launch projects with GDV worth approximately RM6.8bil in FY19, focusing mainly in the Klang Valley and Johor. The company is maintaining its sales target of RM5.65bil for FY19.

• To recap, S P Setia has launched projects worth RM339mil in GDV up to 1QFY19, comprising mainly landed residential properties. The company recorded new sales of RM718mil in 1QFY19, whereby 94% were derived from local projects.

• As for the 40% stake in its JV Battersea project, demand of the residential units has been encouraging with sales of £120mil over the past 12 months. Phase 2 (residential), comprising 255 units of apartments, has a GDV of approximately RM3.8bil and is expected to be completed by the end of 2020. Revenue profit recognition is expected from 4QFY20 onwards. So far, more than 90% of Phase 2 residential properties have been sold.

• FY19 earnings will be driven by higher sales due to the 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 are maintaining our FY19–21 net profit forecasts at RM352.9mil, RM402.8mil and RM462.0mil respectively; and our fair value is unchanged at RM2.39 per share.

• We believe the outlook for S P Setia remains stable premised on its strong unbilled sales of RM10.95bil and overseas contribution beginning 2020. Maintain BUY.

Source: AmInvest Research - 25 Jul 2019