Investment Highlights

• We maintained our BUY recommendation on S P Setia with an unchanged fair value of RM2.39 based on a conservative 45% discount to RNAV (Exhibit 2). We made no changes to our FY19–FY21 numbers.

• S P Setia’s 1HFY19 core net profit of RM197.3mil (+23% YoY) came in within expectation despite making up 55% of both our and consensus full-year forecast as we expect slightly lower earnings in 2HFY19. 1HFY19 revenue grew by 39.2% YoY, mainly due to the sale of British Embassy land. Meanwhile, ongoing projects also contributed to the stronger revenue namely Alam Setia Eco Park, Alam Impian and Temasya Glenmarie in Shah Alam, Setia EcoHill and others.

• S P Setia recorded new sales of RM1.98bil in 1HFY19 (1HFY18 –RM2.11bil), whereby 87% were derived from local projects. The group revised its sales target downwards to RM4.55bil from RM5.65bil due to the uncertain macroeconomic situation and prolonged subdued property market.

• During 1HFY19, S P Setia launched projects worth approximately RM1.55bil in GDV, comprising mainly landed properties. 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 launch of Avis 2 at Setia Alamsari (priced from RM709K) and Reef of Tropic at Setia Eco Glades (from RM774K) both achieved more than 90% take-up rates during their respective launches in April 2019. Meanwhile Rosario, at Setia Safiro (from RM739K) and Kandara at Setia Mayuri priced (from RM864K) were fully taken up over one weekend during their launches in July 2019.

• For the rest of 2HFY19, S P Setia has planned a total of RM3.33bil worth of launches, focusing on Klang Valley (RM2.32bil) and Johor (RM776mil).

• 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 RM10.67bil and overseas contribution beginning 2020. Maintain BUY.

Source: AmInvest Research - 15 Aug 2019