• SP Setia’s 9MFY23 core net profit came in below our expectations due to higher interest charges and wider associate losses.

• SP Setia achieved 92% of its FY23F sales target of RM4.2bn in 9M23. Unbilled sales stayed high at RM6.7bn as at 30 Sep 23 (c.1.6x cover ratio).

• With its share price up 38% YTD, we downgrade our call from Add to Hold as we believe positives are priced in. Our TP is unchanged at RM0.90/share.

9MFY23 Core Net Profit Hit by Higher Opex and Interest Costs

In 3QFY23, SP Setia reported a core net profit (excluding forex, impairment and fair value adjustment) of RM42.6m (-39% yoy, -30% qoq), taking 9MFY23 core net profit to RM153m (-22% yoy). After payment of preferential dividend, 9MFY23 core net profit stood at RM48.9m (-43% yoy), accounting for 26% of our FY23F estimate. The lower 9M23 core net profit was mainly due to higher finance costs (+49% yoy), higher-than-expected tax rate of 51% (non-tax deductible expenses), and higher opex due to hotel opening, which more than offset the 9% increase in revenue.

Achieved RM3.89bn in Property Sales

For 9M23, SP Setia achieved new property sales of RM3.89bn (c.RM1bn from land sale), accounting for 92% of its full-year target sales of RM4.2bn. Local sales accounted for 87% of sales and the remaining 13% were international sales. During the quarter, the group launched Setia Fontaines City Centre Business Hub (56% take-up rate), a new phase in Bandar Kinrara (97% take-up), and Setia Bayuemas (63% take-up). As at 30 Sep 23, the group’s unbilled sales stood at RM6.76bn (c.1.6x cover ratio).

Ongoing Landbank Monetisation Exercise

In line with the group’s landbank management strategy, SP Setia today announced the sale of 19.99 acres of land in Setia City, Selangor to KL Bestari for RM228.8m (RM292 psf, slightly above the indicative market value of RM260 psf). The planned disposal is estimated to yield a gain of RM140.6m, the company said. We are positive on the group’s land monetisation exercise as it will aid in the group’s efforts to reduce debt.

Downgrade to Hold, Share Price Has Risen 38% YTD

We revise our FY23F/24F/25F core net profit by -49%/+20%/34% respectively to reflect i) higher interest costs, ii) higher tax rate assumption for FY23F, and iii) higher progress billings in FY24F and FY25F, on strong unbilled sales. YTD, SP Setia’s share price has risen 38%; the stock is currently trading at 26x FY24F P/E vs. industry average of 15x FY24F P/E. We downgrade our call to Hold from Add, as we believe the positives are priced in. Our TP is unchanged at RM0.90/share, which is based on 0.5x FY24F P/BV, its 5-year mean (Fig 3). Upside risks include stronger-than-expected earnings delivery in FY24F and strong improvement in gearing level. Downside risks include wider-thanexpected share of losses from its Battersea JV and delays in project completion.

Source: CGS-CIMB Research - 23 Nov 2023