Results

• Slightly below expectations: Reported 1HFY16 PATAMI of RM249m, accounting for 35.4% and 36.4% of HLIB’s and consensus estimate.

Dividends

• Declared interim dividend of 4 sen/share.

Deviation

• Slower than expected progress recognition of revenue. 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

• YoY: There are no comparative figures for the YoY due to change of financial year end from Oct to Dec.

• QoQ: Revenue increased by 11.5% mainly due to higher contribution in property development including progress recognition of Setia EcoHill in Semenyih, Setia Eco Glades in Cyberjaya , Setia Alam, KL Eco City, Eco Sanctuary and other ongoing projects.

• SP Setia achieved new sales of RM799m in 2Q16 (versus RM306m in 1Q16) contributed mainly from central Malaysia including Perumahan Penjawat Awan Satu Malaysia, Setia Eco Templer and Setia EcoHill. For the seven months ended July 16, sales achieved RM1.35bn, merely accounting for 34% of full year sales target of RM4bn. Given the challenging outlook, the company has reduced its sales target from RM4bn to RM3.5bn.

• Total launching for the year was also reduced from RM4.7bn to RM4.2bn. Major launches for 2H16 comprise of high rise projects such as ViiA Residence (GDV:RM407m), Setia Sky Seputeh (GDV:RM458m), Trio by Setia (GDV:RM220m) and Setia Sky Ville (GDV:RM453m). We are cautious on these high rise projects given the high entry price amidst softer property market.

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

Forecasts

• FY16 earnings forecast is reduced by 8% after factoring in slower than expected progress recognition of revenue.

Rating

HOLD

• Positives: Strong product concepts and pipeline; consistent dividends.

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

Valuation

Maintain HOLD with TP lowered slightly from RM3.12 to RM3.11 based on unchanged discount to RNAV of 35%.

Source: Hong Leong Investment Bank Research - 24 Aug 2016