Investment Highlights

• We keep our BUY recommendation on S P Setia (Setia) with an unchanged fair value of RM1.26/share based on a 40% discount to its RNAV and a neutral ESG rating of 3 stars (Exhibits 4 & 5).

• The company registered a 1HFY21 net profit of RM150mil (vs. net loss of RM179mil YoY). Stripping off exceptional items, which mostly stem from net forex loss of RM30mil, its 1HFY21 core net profit of RM180mil came in within our expectations, making up 54% and 61% of our and consensus full-year estimates. Thus, we make no changes to our forecasts.

• YoY, Setia’s 1HFY21 revenue doubled, supported by: 1) an 8% rise in progress billings; and 2) 3.1x surge in property sales (Exhibit 3) which helped to offset the declines in construction and investment properties. Setia chalked up new sales of RM2.7bil in 1HFY21 (vs. RM875mil in 1HFY20), attaining 71% of its unchanged sales target of RM3.8bil.

• This impressive performance was driven by local projects which secured 76% of 1HFY21 new sales. Klang Valley accounted for 60% of local sales, in which townships located at Setia Alam and Bandar Kinrara contributed 25% to central region sales while the remaining came from the southern region.

• For international projects, which consisted of 24% of 1HFY21 total group sales, Daintree Residence, Singapore was the main contributor.

• QoQ, Setia’s 2QFY21 core net profit fell by 31% weighed down by weaker contributions from both construction and investment properties due to full lockdown impacts starting from June 2021.

• Moving forward to 2HFY21, Setia will offer new launches worth RM2.5bil (vs. RM1.2bil in 1HFY21) in various townships of which the majority are located in the central region, particularly in Setia Alam Impian and Setia Eco Hill 2. These would be supported by the ongoing home ownership campaign and government incentives such as full stamp duty exemption for properties below RM1mil and minimum 10% purchase price discount. The company has also secured RM954mil bookings as at 30 June 2021 and remains focused on converting these bookings into sales.

• We expect the group’s FY21F–23F earnings growth to be supported by its strong unbilled sales of RM10.3bil (vs. RM9.7bil YoY) which translates to 2.4x FY21F sales, together with improving overseas contribution and inventory clearing efforts. Hence, we believe Setia is well positioned to ride on a likely post-pandemic sector recovery, underpinned by a diversified portfolio in both local and international market.

Source: AmInvest Research - 19 Aug 2021