Results

1Q14 core PAT rose 7.4% yoy to RM96.8m or making up 22% and 18% of HLIB and consensus estimates respectively.

Deviations

We consider 1Q results in-line as 1Q is historically the weakest quarter for SPSB. In FY12-13, 1Q made up 19-22% of full year earnings.

Dividends

None.

Highlights

Healthy sales in 1Q. SPSB achieved RM1.63bn sales in 1Q14, representing a 34% yoy increase from the RM1.22bn recorded for 1Q13. As at end Feb 2014, total group sales for the first four months of FY10/14 were RM1.83bn. Recall that management is not committing to a sales target for FY14.

Doing well on the home front. We believe SPSB has positioned itself correctly for 2014, by catering to undiminished demand for affordable homes, particularly in the Klang Valley. Setia EcoHill @ Semenyih has chalked up RM649m of sales as of Feb 2014, whilst the final block of medium cost apartments located in Setia Alam was bought by largely first-time homeowners.

International front. Battersea Phase 2 is slated to launch by mid-2014. As for Singapore and Australia, there are no more remaining launches for FY14, and SPSB will focus on selling the remaining units in FY14.

Margin pressure on the horizon. SPSB has been able to maintain its gross margin at 28% for 1Q14 (vs. 29% for 1Q13), but we expect other cost pressures to weigh on margins, including: (1) Shortage of skilled labour following the crackdown on illegal workers particularly in 4Q 2013; (2) Subsidy removals such as the petrol hike in Sep 2013 and electricity tariff in Jan 2014; and (3) New levies and processing fess introduced by state governments.

Healthy earnings visibility. Unbilled sales of RM11.2bn is 3.7x FY13 revenue, and will provide earnings resilience in the face of negative headwinds going into 2014.

Risks

Slowdown in sales; escalation in construction and raw material costs; delays in launches.

Forecasts

Maintained.

Rating

HOLD

Positives: Strong product concepts and pipeline; consistent dividends.

Negatives: No longer the most liquid property stock in Malaysia.

Valuation

Maintain TP at RM2.91 (35% discount to FD RNAV), due to lack of fresh rerating catalyst as well as limited upside with the current negative sentiment surrounding the property sector.

Source: Hong Leong Investment Bank Research - 21 Mar 2014