Results

• 1H17 revenue of RM1.7bn translated into PATAMI of RM241.5m, accounting for 34.8% and 31.9% of HLIB and consensus full year estimates.

Dividends

• Declared an interim dividend of 4 sen (flat yoy). A higher dividend payout is usually declared in 4Q.

Deviation

• The result is deemed in line as we expect stronger 2H17 with handover of another 6 blocks from Battersea Power Station Phase 1 (Battersea).

Highlights

• QoQ: Revenue dropped 15.5% mainly due to high base effect resulted from the contribution of Parque Melbourne, Eco Sanctuary in Singapore in 1Q17. However, PATAMI increased by 29.6% to RM136.3m given the higher contribution from delivery of Battersea.
• YoY: Revenue decreased by 21.6% mainly due to the completion of Eco Sanctuary in Singapore and KL Eco City at Jalan Bangsar; partially offset by contribution from Setia EcoHill 2, Setia Eco Templer, Perumahan Penjawat Awam 1Malaysia (PPA1M) and Setia Sky Ville. Nevertheless, PATAMI grew by 8.4% to RM136.3m driven by staggered completion of Battersea.
• YTD: Revenue came in lower by 9.7% while PATAMI came in 3.1% lower given the absence of contribution from Eco Sanctuary and several phases of KL Eco City which was completed since last year. It was partially offset by higher contribution from Battersea.
• During 1H17, total new sales achieved stood at RM2.1bn (+86.5% yoy) with 42% from international sales, largely contributed by the launch of Sapphire in Melbourne (RM795m at 74% take-up). The total sales are on course to meet full year target of RM4bn supported by another RM2.9bn worth of launches in 2H.
• Moving forward, the focus is to ramp up local sales with planned launches in the 2H worth some RM2.5bn including but not limited to Setia Alam, Setia EcoHill, Setia EcoHill 2, Setia Eco Park, Setia Eco Templer, Setia Eco Glades, Setia Tropika and Setia Indah.
• Earnings prospects remain intact with total unbilled sales of RM8.0bn (cover ratio of 1.8x) which will sustain its earnings visibility for coming years.
• On a side note, despite undergoing equity fund raising, we remain positive on the imminent synergistic acquisition of I&P Group given the attractive price and boosting of Setia’s overall landbank to 9.5k acres (3rd largest in Malaysia).

Forecasts

• Unchanged.

Rating

BUY ↔

• We believe investor’s sentiment towards SP Setia would improve as the proposed acquisition of I&P Group is RNAV accretive and potentially become the largest pure property player in the market. Consistent dividend yield of 5% is another positive point.

Valuation

• Maintain BUY with unchanged TP of RM4.00 based on a 30% discount to RNAV of RM5.67 given the accretive major corporate exercise which has long-run synergy.

Source: Hong Leong Investment Bank Research - 18 Aug 2017