Investment Highlights

• We maintain HOLD on S P Setia (Setia) with a lower fair value (FV) of RM1.14/share from RM1.17/share based on a revised RNAV valuation. Our fair value is based on a 40% discount to its RNAV and a neutral ESG rating of 3 stars (Exhibits 4 & 5).

• Setia’s 1QFY22 core net profit (CNP) of RM66.3mil was within our expectation, making up 22% of our FY22F earnings while slightly below street’s at 18%. Nevertheless, we lower our FY22F net profit by 7% to reflect higher margin compression from increased building material costs.

• YoY, Setia’s 1QFY22 revenue declined 18%, attributed to a 43% drop in property sales after the expiry of the Home Ownership Campaign in December 2022. CNP was lower by 38% YoY, dragged by higher construction cost. Despite the drop, we believe the group’s FY22F revenue and CNP will be largely supported by unbilled sales of RM9.8bil, of which 30% will be recognised this year.

• Setia registered new sales of RM679mil (vs. RM1.2bil in 1QFY21), attaining only 17% of its FY22F sales target of RM4bil (Exhibit 3). Securing RM655mil bookings as at 31 March 2022, the group remains focused on converting these into sales.

• Despite the lower sales in 1QFY22, the company is confident of meeting its FY22F sales target. We are cautiously optimistic on the prospect of new sales in view of the potential scale-back of new launches and Setia’s focus on property with prices above the affordable level.

• We understand that the company is prudent on its new launches given that 3MFY21 new launches have only reached RM505mil, translating to a mere 13% of FY22F target launches of RM4bil. Setia may defer future launches should construction costs continue to rise.

• Local projects remained the main contributor, securing 92% of 3MFY22 new sales. The central region accounted for 67% of local sales, in which townships in Setia Alam, Setia Eco Park and Setia Sky Seputeh made up 50% of the central region sales while the remaining came from the southern region (22%) and the northern region (11%).

• The main contributor for its international projects, which accounted for the remaining 8% of 3MFY22 group sales, stemmed from Daintree Residence in Singapore together with Sapphire by the Gardens in Melbourne, Australia.

• QoQ, Setia’s 1QFY22 CNP tumbled 56% due to lower property sales following a ramp-up in sales in 4QFY21. 1QFY22 property development pretax profit dropped 37% QoQ to RM118mil from slower sales and progress billings. On a brighter note, we saw a narrower pretax loss QoQ on the construction segment and other operations.

• The stock currently trades at a fair FY23F PE of 10x vs. a 4-year average of 12x.

Source: AmInvest Research - 24 May 2022