Results

• Below expectation: FY17 revenue of RM4.0bn translated into PATAMI of RM775.1m, came in slightly below our expectations at 92.1% of our full year estimates and below consensus at 85.1%.

Dividends

• Declared a final dividend of 11.5 sen, bringing YTD dividend to 15.5 sen, yielding 4.7% at current price.

Deviation

• Mainly due to slower progressive billings.

Highlights

• QoQ: Revenue was up 26.6% due to higher progressive billings from ongoing projects. However, PATAMI dropped by 36.8% due to higher opex and lower contribution from Battersea Power Station.
• YoY: Revenue decreased by 39.8% mainly due to lower contributions from ongoing projects such that Parque Melbourne in Australia, Eco Sanctuary in Singapore and KL Eco City at Jalan Bangsar which were completed last year. In turn, PATAMI declined by larger magnitude of 62.3% due to lesser handover units from Battersea.
• FY17: Revenue came in lower by 26.5% due to completion of some major projects since last year and substantial ongoing projects are still at the early stage of constructions resulting from the repositioning of launches. Consequently, PATAMI also came in lower (-21.0%), partially cushioned by higher contribution from Battersea.
• Total new sales achieved in FY17 stood at RM4.1bn with 37% from international sales, largely contributed by the launch of Sapphire in Melbourne (RM1.1bn with 91% take- up).
• For FY18, the group is targeting sales of RM5.0bn with 80% (up from 63% in FY17) from local developments, underpinned by RM7.1bn worth of launches.
• The earnings prospects remain intact supported by total unbilled sales of RM7.7bn (cover ratio of 2.1x) which will sustain its earnings visibility for coming years.
• For FY18, management is expecting contribution from I&P to provide support to earnings in the absence of contribution from Battersea. With the access to I&P land banks and customer base, more synergies and economies of scale can be drawn from the enlarged entity in the long run.

Forecasts

• Unchanged.

Rating

BUY ↔; TP: RM4.00 ↔

• We believe investor’s sentiment towards SP Setia wil l improve after the overhang issue resulted from fund raising in 1Q18. The completion of RNAV accretive acquisition of I&P Group should provide the earnings cushion in FY18 and drive SP Setia to become the largest pure property player in the market. Consistent dividend yield of circa 4-5% is another positive catalyst.

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 - 28 Feb 2018