Investment Highlights

• We maintain our HOLD recommendation on S P Setia with a lower fair value of RM0.70 (from RM0.76) based on a conservative 70% discount to its RNAV (Exhibit 2). We cut our FY20–FY22 numbers net earnings forecasts by 42%, 24% and 23% respectively to reflect the timing of recognition.

• S P Setia’s 1QFY20 core net profit of RM28.4mil (-68.2% YoY) came in below expectations, making up 8% of our and consensus full-year estimates. 1QFY20 revenue and net earnings fell by 18.8% and 68.2% YoY respectively, partly due to the movement control order (MCO) which resulted in the closure of sales offices, construction sites and social activities, hence lower recognition.

• S P Setia recorded new sales of RM470mil in 1QFY20 (1QFY19: RM718mil), whereby 77% were derived from local projects, mainly in the central region. The group reduced its sales target to RM3.8bil from RM4.55bil as a result of the MCO and its spilled-over effects on the economy.

• On a positive note, S P Setia has secured RM723mil bookings in the pipeline. However, the sale and purchase agreements were delayed by the MCO. During the extended conditional MCO period, the company will remain focused on converting these bookings into sales. Several construction sites which met the conditional MCO requirements and guidelines have been granted approval to resume work.

• Moving forward, S P Setia will stay prudent with limited new launches, concentrating mainly on the mid-range landed units in established townships in view of the challenging environment.

• For FY20, earnings will be supported by strong unbilled sales of RM9.8bil, overseas contribution and inventory clearing efforts. S P Setia’s gearing has increased from 0.58x to 0.60x YoY while interest coverage is still manageable at 3.1x. We cut our FY20–FY22 numbers net earnings forecasts by 42%, 24% and 23% respectively; while our fair value is reduced to RM0.70 per share from RM0.76. Maintain HOLD.

Source: AmInvest Research - 15 May 2020