KUALA LUMPUR (Aug 17): S P Setia Bhd's share price closed at 85.5 sen on Thursday (Aug 17), its highest in about 15 months, despite the real estate developer's announcement a day earlier of a 46% drop in its net profit for the second quarter ended June 30, 2023 (2QFY2023).

The last time the counter closed above 85.5 sen was in May last year, when it closed at 91.3 sen. At 85.5 sen, S P Setia's share price has gained 8.23% or 6.5 sen from Wednesday’s closing price of 79 sen, giving the group a market capitalisation of about RM3.47 billion.

Earlier, the stock opened at 77.5 sen, its lowest for the day, before hitting as high as 88.5 sen. S P Setia was the fifth most active stock on Bursa Malaysia on Thursday, with a trading volume of 79.57 million shares.

According to Bloomberg, seven research firms had target prices (TPs) ranging from 68 sen to RM1.20 for S P Setia. Four firms had a 'buy' or 'outperform' call on the stock, followed by two 'hold', and one 'underperform'.

S P Setia's net profit dropped to RM43.06 million for 2QFY2023, from RM80.09 million for 2QFY2022, as increased finance cost and foreign exchange losses offset the group’s higher gross profit, which grew by 13%, while revenue declined 7.4% to RM942.72 million from RM1.02 billion.

In a note, TA Securities Holdings Bhd, with a TP of RM1.05 for S P Setia, said the management had expressed confidence in achieving its FY2023 sales target of RM4.2 billion.

“We believe this is achievable, considering that year-to-date property sales of RM2.05 billion (excluding land sales) had made up 49% of the target, with RM498 million in pending bookings awaiting conversion to sales and anticipated launches worth RM2.7 billion in Malaysia during the second half of 2023,” it said.

Besides the sales target, TA Securities highlighted S P Setia’s pivotal objective in 2023, which is to reduce its net gearing.

“S P Setia aims to further decrease its current net gearing of 0.55 times (compared with 0.64 times in the first half of 2022). This will be achieved primarily through repatriating funds from overseas projects, liquidating non-strategic land, and clearing the unsold inventory.

“Despite having already realised over RM1 billion from non-strategic land monetisation this year, the management remains committed to additional land monetisation to strengthen its financial position and pursue future growth opportunities,” the firm said.

TA Securities added that the property sector is currently witnessing a resurgence in investor optimism with the upbeat sentiment likely to persist, due to anticipations such as Bank Negara Malaysia’s overnight policy rate (OPR) hike cycle nearing its end, and the potential implementation of more favourable policies aimed at facilitating homeownership for both locals and foreigners.

As for Hong Leong Investment Bank Bhd (HLIB), the research firm expects S P Setia’s finance cost to stabilise with the OPR hikes likely over, as the group continues its efforts to pare down debt.

“The group’s net gearing (including redeemable convertible preference shares) improved slightly in 2QFY2023 to 78.7%, from 79.8% in 1QFY2023,” the firm said in a note, maintaining its 'hold' call on S P Setia, with a higher TP of 77 sen from 53 sen.

“We expect further improvement in subsequent quarters, due to proceeds from the handover of its Australian projects, as well as proceeds from land sales to Mah Sing Group Bhd and Scientex Bhd totalling RM940 million.

“Over in the UK, the Bank of England hiked interest rates by another 25 basis points to 5.25% on Aug 3. Given the rising mortgage rates and elevated inflation in the UK, we continue to see a challenging landscape for the Battersea [Power Station] project,” HLIB said.

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