Results

2Q14 core PAT declined 22.4% yoy to RM74.3m, with YTD net profit of RM171m making up 39% and 34% of HLIB and consensus estimates respectively.

Deviations

Due to a combination of: (1) Higher minority interests arising from adoption of new accounting standards for its JV projects such as Setia Eco Park; (2) Starting from 2Q, SPSB is making provision for future GST expenses of its existing projects, which we understand will continue until 4Q FY15.

Dividends

4 sen single tier dividend was declared.

Highlights

Healthy sales YTD. As of May, SPSB has achieved RM3.2bn sales, with the key drivers being Setia EcoHill (RM734m) and Battersea Power Station in London (RM620m). Its landed townships in Johor also continue to do well, generating RM367m worth of sales.

Slowing sales momentum. We believe SPSB has positioned itself correctly for 2014, by catering to sustainable demand for landed homes in the Klang Valley and Johor. However, it has not been immune to the slowdown in sales. Its key project Setia EcoHill @ Semenyih registered RM64m sales in Feb but only RM20m in May. Fortunately, its Phase 2 of Battersea has done well, with most of the units taken up in first week of launch at GBP2,300 psf.

Continues to face margin pressure. SPSB continues to face margin pressure, with its gross margin declining from 30% in 2Q13 to 28% in 2Q14. The main reasons include: (1) Shortage of skilled labour and subsidy removals; (2) New levies and processing fess introduced by state governments; and (3) Higher costs from LTIP (long term incentive program) and GST provisioning.

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

FY14-15 forecast reduced by 11-15% to factor in: (1) Higher MI from consolidated projects; (2) GST provisioning until 4Q FY15; and (3) Additional overhead cost from its LTIP.

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 subdued sentiment surrounding the property sector.

Source: Hong Leong Investment Bank Research - 12 Jun 2014