Investment Highlights

• We maintain our HOLD recommendation and forecasts on S P Setia (Setia) with a lower fair value of RM1.22/share (from RM1.26/share previously), based on a 40% discount to its RNAV and a neutral ESG rating of 3 stars (Exhibits 4 & 5).

• We cut our FY21–23F earnings forecast by 17%–27% to reflect slower-than-expected progress billings and lower associate contribution.

• Stripping off one-off losses of RM10mil for forex and RM3mil for investment disposals, the company’s 9MFY21 core net profit (CNP) of RM172mil (vs. net loss of RM369mil in 9MFY20) was below expectations, accounting for 52% of our earlier FY21F earnings and 67% of consensus.

• YoY, Setia’s 9MFY21 revenue rose 29%, supported by: 1) a 31% increase in progress billings; and 2) an 18% surge in property sales (Exhibit 3).

• Setia chalked up 9MFY21 new sales of RM3.4bil (vs. RM2.9bil in 9MFY20), attaining 89% of its unchanged FY21F sales target of RM3.8bil.

• Local projects remained the main contributor, securing 78% of 9MFY21 new sales. Klang Valley accounted for 78% of local sales, in which townships located at Setia Alam, Bandar Kinrara and Setia Alam Impian made up 36% to the central region sales while the balance came from the southern region.

• The main contribution for international projects, which accounted for the remaining 22% of 9MFY21 group sales, stemmed from Sapphire by the Gardens and Marque Residences in Australia together with Daintree Residence in Singapore.

• QoQ, Setia’s 3QFY21 reversed to a core net loss of RM7mil from a net profit of RM74mil in 2QFY21 due to the movement control order (MCO 3.0) disruption, which led to larger losses in its construction and other operations, including wood-based manufacturing and trading activities. Meanwhile, 3QFY21 property development pretax profit halved QoQ to RM72mil from slower sales and progress billings.

• Moving forward, we understand that the company is on track and most likely to exceed its FY21 sales target. However, Setia is prudent on its new launches, deciding to scale down FY21F target by 29% to RM2.7bil given that 9MFY21 new launches have only reached RM1.5bil. Securing RM770mil bookings as at 30 September 2021, the group remains focused on converting these into sales.

• The group’s unbilled sales of RM9.8bil dropped by 5% QoQ due to the slower sales, which translates to 2.6x FY21F sales. The stock currently trades at a fair FY21F PE of 23x, at par with its 3-year average.

Source: AmInvest Research - 24 Nov 2021