Investment Highlights

• We maintain our HOLD recommendation on S P Setia with an unchanged fair value of RM1.41 based on a conservative 50% discount to RNAV (Exhibit 2). We made no changes to our FY19–FY21 numbers.

• S P Setia’s 9MFY19 core net profit of RM254mil (+12.7% YoY) came in within expectation, making up 73% and 76% our and consensus full-year forecast. 9MFY19 revenue grew by 21.7% YoY, mainly due to the sale of the 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 RM3.07bil in 9MFY19 (9MFY18 –RM3.21bil), whereby 85% were derived from local projects, mainly in the central region. The group maintained its sales target at RM4.55bil.

• For the first 9 months of 2019, S P Setia launched projects worth approximately RM2.71bil in GDV, comprising mostly 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 townships. 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 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 4QFY19, S P Setia plans to launch projects with a total GDV of RM2.17bil, with the main focus in Klang Valley and Johor Bahru, bringing the total launches for FY2019 to RM4.88bil. Additionally, the group will launch 2-storey linked houses at its latest township Setia Warisan Tropika located in Bandar Baru Salak Tinggi in mid-November this year.

• 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 RM1.41 per share.

• We believe the outlook for S P Setia remains stable premised on its strong unbilled sales of RM10.5bil and overseas contribution beginning 2020. Maintain HOLD.

Source: AmInvest Research - 14 Nov 2019