Results

9MQ14  core  PATAMI  of  RM274.4m  came  in  within expectations,  accounting  for  73.6%  of  our  full  year forecast.

Against  consensus,  SPSB’s  9MFY14  results  came  in below expectations, accounting for only 58% of its full year earnings projection.

Deviations 

• Largely in-line.

Dividends 

• None.  Dividends  are  usually  declared  on  a  semiannual basis.

Highlights

Healthy  sales  YTD.  SPSB’s sales during the quarter almost  doubled  qoq  to  RM1.42bn  (vs.  RM715m  in 2QFY14).  As  such,  the  group’s  sales  for  the  first  ten month totalled to RM3.81bn.

Property market softens.  Despite the softening in the property market, SPSB continues to have satisfactory sales  from  the  successful  Phase  2  residential  launch by  its  JV  project,  Battersea  Power  Station  in  UK.  In 3QFY4, the group’s 40% share of the JV’s sales stood at RM735m.

Margin pressure  continues.  SPSB continues to face margin  pressure,  with  its  gross margin  declining  from 32%  in  3Q13  to  30%  in  3Q14.   The  main  reasons include:  (1)  Shortage  of  skilled  labour  and  subsidy removals;  (2)  New  levies  and  processing  fees introduced by state governments; and (3) Higher costs from  LTIP  (long  term  incentive  program)  and  GST provisioning.

Healthy  earnings  visibility.  Unbilled  sales  of RM10.88bn are  3.55x FY13 revenue, and will provide earnings  resilience  in  the  face  of  potential  negative headwinds going into 2014-2015.

Risks 

• Slowdown in sales;
• Escalation in construction; and
• Raw material costs; delays in launches.

Forecasts 

• Unchanged.

Rating

HOLD

• Positives:  Strong  product  concepts  and  pipeline; consistent dividends.
• Negatives: No longer the most liquid property stock in Malaysia.

Valuation 

• After  conducting  housekeeping for our RNAV, our TP is raised to  RM3.45  (maintain  35% discount to RNAV), which  values  SPSB  at  14.8x  FY15E  P/E,  vs.  18x  for IOIPG and UEMS.
• Maintain HOLD.

Source: Hong Leong Investment Bank Research - 18 Sep 2014