Investment Highlights

• We maintain our HOLD recommendation on S P Setia with a lower fair value of RM1.36 (from RM1.40) based on a 50% discount to RNAV (Exhibit 2). We cut our FY20–FY21 numbers by 8% and 7% respectively to reflect the timing of recognition. We also introduce FY22 net earnings forecasts at RM488.9mil.

• S P Setia’s FY19 core net profit of RM342.0mil (+8.0% YoY) came in within our expectation but above consensus estimates. FY19 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 RM4.56bil in FY19 (FY19 target: RM4.55bil), whereby 88% were derived from local projects, mainly in the central region. The group maintained its sales target at RM4.55bil and GDV launch of RM4.4bil for FY20.

• For FY20, S P Setia will continue to concentrate on landed residential properties mainly in the established township developments of Setia Alam, Setia Eco Hill 1 & 2, Setia Alamsari, Bandar Kinrara and Alam Impian in the central region; Setia Tropika, Taman Pelangi, Taman Pelangi Indah and Taman Rinting in the southern region; and Setia Fontaines in the northern region.

• Besides, the group will be launching commercial properties of shop lots with a combined GDV of approximately RM871mil in Alam Impian, Kota Bayuemas, Temasya Glenmarie, Setia Eco Glades and Taman Pelangi to support and scale up the existing development mix and to ensure the sustainability of these housing areas.

• FY20 earnings will be driven by new developments and inventory clearing efforts. Nonetheless, we are cautious of the current challenging economic condition, hence reducing our FY20-21 net profit forecasts by 8% and 7% respectively to reflect the timing of recognition. We also introduce FY22 net earnings forecasts at RM488.9mil.

• We believe the long-term outlook for S P Setia remains stable premised on its strong unbilled sales of RM10.7bil and overseas contribution beginning 2020. Maintain HOLD with a fair value of RM1.36.

Source: AmInvest Research - 27 Feb 2020