SP Setia (SPSB) registered weaker than expected 3QFY23 profits, with YTD net profit coming in at RM150.3m (-31% YoY) or only constituting about 45% and 51% of our and consensus estimates. We had earlier expected profits to be stronger, driven by land sale contributions (which are now deferred to early FY24) and handover of overseas projects, where margins also came in short of expectations. As such, we adjust our FY23/FY24/FY25 estimates by - 37%/+60%/-22% after factoring changes in margin and billing (especially gains from land sale) assumptions. Separately, net gearing improved further to 0.53x, from 0.56x in 1QFY23. We believe it can easily meet its net gearing target of 0.5x by end-FY23. Sales for 9MFY23 totaling RM3.89bn is already at 93% of its FY23 sales target of RM4.2bn. Separately, it has also just announced the sale of 17.99 acres of land in Setia City, Selangor to KSL Bestari Sdn Bhd for RM228.8m, in line with its strategy to right size its landbank and strengthen its balance sheet. All told, we maintain our Outperform call with TP of RM1.20 pegged at ~60% (vis-à-vis sector average of ~0.5x to NTA. We still like the stock for its undemanding valuations and well-located landbank.
Source: PublicInvest Research - 24 Nov 2023
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