Results

• Broadly inline with expectations: 1Q16 PATAMI achieved RM123m, accounting for 17% of HLIB’s estimate.

Deviation

• We deemed the result inline as we expect stronger 2H16 with handover of Parque Melbourne in 4Q16, Eco Sanctuary (completion in 16) and part of Phase 1 of Battersea Power Station.

Highlights

• SP Setia achieved new sales of RM306m in 1Q16, accounting for only 7% of full year sales target of RM4bn. This is mainly due to absence of new projects launched in 1Q16 (only launched Edulis and Retusa with combined GDV of RM128m, received strong take up rate of 86%). Nevertheless, new sales have picked up to RM696m in Jan-Apr 16.

• New launching is also expected to accelerate in subsequent quarters with target GDV of RM4.7bn. Major launches including Eco Templer (GDV:RM269m), EcoHill2 (GDV:RM512m), KL Eco City (GDV:RM444m) and Eco Sky Ville (GDV:RM477m). Management remains confident in achieving full year sales target of RM4bn.

• In order to boost sales amidst tight lending condition, SP Setia had come out with Setia 10:90 scheme, which only required purchasers to pay 10% upfront deposit with remaining 90% to be paid after completion. The concern on revenue unwinding if purchasers fail to secure bank financing after completion should be mitigated by higher upfront payment requi red (as the scheme is aimed at project with value >RM800k/unit) as this will help to filter out impotent buyers.

• Take up rate for Battersea Phase 3A remained slow, merely increased from 59% to 60% with 2 units sold in 1Q16. We understand that sales will remain challenging as the remaining units are larger in size (>1600 sf) which are priced above GBP2m.

• Unbilled sales decreased slightly from RM9.2bn to RM8.6bn, representing 2.5x FY14’s property development revenue.

Risks

• Escalation in construction and raw material costs; and
• Delays in launches.

Forecasts

• Unchanged.

Rating

HOLD

• Posi tives: Strong product concepts and pipeline; consistent dividends.

Negatives

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

Valuation

• Maintain HOLD with unchanged TP of RM3.12 based on discount to RNAV of 35%.

Source: Hong Leong Investment Bank Research - 13 May 2016