SP Setia’s FY20 core PATMI of RM180.9m (-40.6% YoY) were above our and consensus expectation largely due higher-than-expected sales take-up and handover of international projects. For FY21, SP Setia has set a sales target of RM3.8bn (same YoY) as well as RM3.68bn worth of GDV launches. Despite the results surprise, we cut FY21/22 earnings by 15%/10% to account for delays in the handover of Battersea. Maintain HOLD rating with a lower TP of RM0.98 (from RM1.00) on an unchanged discount of 80% to RNAV of RM4.90.

Above expectations. 4QFY20 recorded core net profit of RM81.3m (+10.7% QoQ, +0.7% YoY), bringing FY20’s sum to RM180.9m (-40.6% YoY). The results were above our (144%) and consensus (265%) expectations largely due higher-than expected sales take-up at the Daintree Residence project in Singapore and handover of Australian project, Marque Residences in 4Q20. FY20 core PATMI was derived after excluding net EIs of RM501.9m (mostly from impairment worth RM139.6m on completed inventory and RM336m from its JV in Battersea). No dividend declared.

QoQ. Top-line increased marginally by 3.1% largely from the handover of Australian project, Marques Residences in 4Q20. Nonetheless, core PATAMI showed an improvement by 10.7% contributed by lower net interest expenses (-90.5%) from the lower interest rate environment.

YoY. Notwithstanding the higher revenue by 39.9% from better-than-expected sales take-up at the Daintree Residence project in Singapore and handover of Australian project, Marque Residences in 4Q20, core PATAMI remained largely flattish (+0.7%) due to lower margin project recognitions.

YTD. FY20 core PATMI earnings fell -40.6% to RM180.9m largely hit by the MCO (Mar-Apr 2020) that led to the halt in operations which impeded revenue recognition.

Sales and launches. RM1.5bn worth of sales was achieved in 4QFY20, bringing FY20 sales to RM3.8bn, which is within their target. Sales from the domestic market constitutes: (i) Central Region: RM2.4bn; Northern, Southern & Eastern Region: RM747m and; (iii) International Region: RM716m. Of the total sales, completed inventories consisted of RM695m while sales from HOC consisted of RM1.6bn (51% of local sales). Unbilled sales stood at RM10.05bn as of 4QFY20, representing a cover ratio of 3.3x.

Outlook. For FY21, SP Setia has set a sales target of RM3.8bn (unchanged YoY) which consists of: (i) Central Region: RM2.3bn; (ii) Northern and Southern Region: RM976m; (iii) International Region: RM566m. With regards to planned launches, FY21 is targeted for RM3.68bn worth of GDV with 71% located in the Central Region. Overall, given the low base impact of FY20, we reckon FY21 may potentially see improved earnings once pandemic headwinds subside. However for Battersea project, management notes that there will be a delay in handovers as currently they are expecting Phase 2 to be delivered in Mar-Aug 2021 (previously targeted in 2QFY21) while Phase 3a in Nov 2021-Mar 22 (previously targeted in 3QFY21). Forecast. Although the results were a positive surprise, we cut FY21/22 earnings by 15%/10% to account for the delays of the Battersea handover. Maintain HOLD rating with a lower TP of RM0.98 (from RM1.00) on an unchanged discount at 80% to RNAV of RM4.90 as we imputed changes to our earnings. Despite earnings performing above our expectations, we expect the property market to remain challenging in the near term with the ongoing impact of Covid-19 alongside challenges in the Battersea project given the recent handover delay.

Source: Hong Leong Investment Bank Research - 26 Feb 2021