Investment Highlights

• We maintain HOLD on S P Setia (Setia) with a higher fair value (FV) of RM0.64/share (from RM0.60/share previously) due to rolled-forward RNAV-based valuation to FY24F. Our FV is based on a 60% discount to our revised RNAV and a neutral ESG rating of 3 stars (Exhibits 7 & 8).

• Our FV implies an FY24F PE of 9x, 1 standard deviation below its 3-year median.

• Setia’s FY22 CNP of RM264mil came in above our expectation but within consensus estimate. It was 9% above our forecast and 4% above street’s.

• The variance to our forecast was mainly due to higherthan-expected revenue recognition at its overseas projects in 4QFY22, particularly the Sapphire by the Gardens and UNO Melbourne.

• Hence, we raise FY23F/FY24F CNP by 17%/21%.This is after taking into account the stronger earnings contribution from its overseas project, particularly the UNO Melbourne with an unbilled sales of RM1bil.

• YoY, Setia’s FY22 revenue rose 18% while CNP fell 2%. The higher property sales was mitigated by an increase in the cost of development, as well as higher finance cost following 4 consecutive OPR hikes from May to November 2022.

• In FY22, Setia registered new sales of RM4.1bil (-4% YoY), exceeding its earlier target of RM4bil (Exhibit 6).

• Local projects remained the main contributor, making up 87% of FY22 new sales. The central region in Malaysia accounted for 62% of total sales, in which the townships of Setia Alam, Setia Alam Impian and Bandar Kinrara were the major contributors. The remaining sales in Malaysia came from the regions in the south (15%), north (8%) and east (3%).

• The main contributors for its international projects, which accounted for the remaining 13% of FY22 group sales, was the Battersea Power Station in London together with Daintree Residence in Singapore.

• For FY23F, management is setting a higher sales target of RM4.2bil (+2% YoY vs. actual FY22 sales) (Exhibit 3).

• The group has secured RM385mil bookings as at 31 December 2022, and remains focused on converting these into sales.

• Setia’s new launches has picked up in 2HFY22 with RM2.3bil of launches vs. RM806mil in 1HFY22. With the stabilisation of building material prices and easing of labour shortages, Setia plans to ramp up its new launches to RM6.2bil in FY23F (Exhibit 4).

• We saw a rebound in Setia’s inventory level, up 37% QoQ to RM1.2bil in 4QFY22 (Exhibit 5). This is primarily due to the acceleration of construction progress, which result in more completed units being recognised.

• QoQ, Setia’s 4QFY22 CNP surged 2.4x due to the handover of Sapphire by the Gardens and UNO Melbourne (Phase 1) in 4QFY22.

• We expect the group’s FY23F revenue and CNP to be largely supported by unbilled sales of RM7.3bil (-29% YoY) as at end-December FY22, which represent a cover ratio of 1.4x of FY23F revenue (Exhibit 6). The main contributors to unbilled sales are its Malaysian projects (64%) and also UNO Melbourne in Australia (14%).

• The stock currently trades at a fair FY23F PE of 10x, at parity to its 4-year average while dividend yield is unattractive at 2%.

Source: AmInvest Research - 1 Mar 2023