Setia’s 2QFY21 net profit came in at RM74.8m (+155.7% YoY, -0.5% QoQ) which was within the consensus but below our expectations. In 1HFY21, Group net profit of RM150.0m (+236.1% YoY) was only 34% and 51% of our and consensus estimates. Given the implementation of the movement control order (FMCO) and enhanced MCO (EMCO) especially in the Klang Valley, billings and property sales have been adversely affected due to the strict standard operating procedures which mandated only 60% work capacity for construction sites under FMCO and stop work orders for EMCO areas. With the expected slower billings and lower profit assumptions for Battersea Power Station (BPS) Phase 2, we cut FY21 earnings by 31% while expect billings to ramp up in FY22 (+18% earning adjustment). Sales performance is decent with a total of RM2.71bn secured in 1HFY21 and it maintains its FY21 sales target of RM3.8bn despite noting that sales have slowed down considerably since the start of FMCO in June 2021. Maintain Outperform with RM1.25 TP, based on c.70% discount to our RNAV estimates.

• Sold RM2.71bn YTD. Group pre-sales for 1HFY21 was RM2.71bn, or already 71% of its FY21 sales target of RM3.8bn. We expect sales momentum to slow down due to the FMCO/EMCO restrictions in the coming quarters but believe that the Group should be able to meet its sales target. As at June 2021, the Group has RM954m worth of bookings despite the mandated closure of sales galleries. Local projects contributed RM2.1bn or c.77% of the sales, whilst the remaining RM639m or c.23% were contributed by international projects mainly from Daintree Residence in Singapore. Both group revenue and PBT improved YoY mainly driven by progressive revenue recognition from strong take-up rates achieved and higher sales of completed inventories of RM425m (+137% YoY).

• Still eyeing FY21 sales target of RM3.8bn. To recap, the Group set its FY21 sales target at RM3.8bn, with 85% expected from local projects while the remainder will come from overseas projects. For the 2HY21, the Group is looking to unveil projects worth RM2.47bn mainly from its existing townships. Separately, we understand that some units of luxury apartments at BPS Phase 2 have been handed over since May 2021 and the remaining sold units to be handed over in 2H2021. Apple office has also been handed over on July 12, 2021.Meanwhile, Phase 3A is expected to be completed by end FY21. Currently, the combined take-up rate is about 80% for both phases. Elsewhere, Sapphire by the Garden and UNO Melbourne in Australia are still on track to be completed by FY22-23.

Source: PublicInvest Research - 19 Aug 2021