SP Setia registered a lower 3QFY21 net profit of RM11.0m ( >100% YoY, -85.3% QoQ) which came in below our and consensus expectations. YTD, Group net profit of RM161.0m (>100%% YoY) was only c.54% and c.57% of our and consensus estimates. Billings were slowed by the implementation of the Full Movement Control Order (FMCO) and enhanced MCO (EMCO) especially in the Klang Valley which mandated only 60% work capacity for construction sites under FMCO and stop work orders for EMCO areas. Given the worse-than expected impact from the pandemic restrictions, we adjust FY21/FY22 estimates downwards by 20%/5% respectively. Total sales secured as at 3QFY21 were RM3.38bn with local projects contributing RM2.66bn whilst the remaining RM728m were contributed by international projects. Given that the current share price has surpassed our TP, we downgrade SP Setia to Neutral from Outperform though with TP changed to RM1.40 from RM1.25 previously, pegged at c.70% discount to RNAV.

• Property revenue rose 31% YoY to RM2.60bn, with pretax profit of RM394.7m (from RM215.1m before impairments), mainly attributable to the recovery of market and economic activities before implementation of MCO 3.0 beginning June 2021. To recap, the financial performance in FY20 (in the similar period) was mainly impacted by the impairment of completed inventories, disruption of site progress at all projects during the Movement Control Order and Conditional Movement Control Order period; and the equity accounting of impairment of work in progress development at Battersea Power Station (BPS) amounting to £62.4m (RM336.3m)

• Sold RM3.38bn year-to-date (YTD). Group pre-sales YTD was RM3.38bn, with 79% contributed by local projects and the remaining from international projects, namely Sapphire by the Gardens and Marque Residences in Australia as well as Daintree Residence (now fully sold) in Singapore. 9- month pre-sales is already at 89% of the Group’s FY21 sales target of RM3.8bn. FY21 sales target is still maintained however. We understand that sales of completed stocks, which form part of the RM3.38bn sales achieved, was RM585m, higher than that achieved for the same period last year of RM462m. Total value of projects launched was about RM1.5bn in 3QFY21, mainly from new phases of existing townships.

Source: PublicInvest Research - 24 Nov 2021