SP Setia’s 1H21 core PATMI of RM113.8m were within expectations. Overall, sales remain strong with RM2.7bn achieved in 1H21, representing 71% of its full year target of RM3.8bn. Management noted that sales have started to slow down considerably since June from NRP Phase 1 impact. Hence we are expecting a weaker 3Q in view of lower sales and progressive billings as well as slower sales conversion. Maintain our forecast and HOLD rating with an unchanged TP of RM0.95 on an unchanged discount at 80% to RNAV of RM4.74.

Within expectations. 2Q21 core PATMI of RM73.5m (+82.5% QoQ), 2Q20: - RM8.7m), brought 1H21 to RM113.8m (1H20: -RM51.4m). The results represented 44% of our full year forecast and 39% of consensus expectations. We deem this as within expectation as we expect a stronger 4Q from higher operation activities inline with the reopening of economy. 1H21 core PATMI was derived after we excluded the payment to RCPS holder amounting to RM66m and subsequently we added back net EIs of RM29.8m (mostly from net foreign exchange loss).

QoQ. Core PATAMI showed an improvement by 82.5% mainly due to the absence of payment to RCPS holder amounting RM66m. Excluding this, PATAMI would have decreased by 30.8% dragged by higher other expense (+31.4%), tax expense (+13.4%) as well as higher minorities interest (+56%) on the back of flattish revenue (+2.8%).

YoY/YTD. Higher revenue by >100% was mainly boosted by higher sales take-up of ongoing projects and sale of completed inventories coupled with the low base effect SPLY. As such, 2Q21 core PATAMI recorded a profit of RM73.5m vs loss of - RM8.7m (1H21 profit: RM113.8m vs 1H20 core loss: -RM51.4m).

Sales and launches. RM1.5bn worth of sales was achieved in 2Q21, bringing 1H21 sales to RM2.7bn (71% of RM3.8bn target). 1H21 sales came from: (i) Central Region: RM1.6bn; other domestic region RM438m and; (iii) International Region: RM639m. Of the total sales, completed inventories consisted of RM425m while sales from HOC consisted of RM995m (48% of local sales). Unbilled sales stood at RM10.3bn as of 2Q21, representing a cover ratio of 3.4x. SP Setia has launched a total GDV of RM687m in 2Q21 whereby mature townships such as Setia Alam and Bandar Kinrara had an encouraging take up rate above 90%. The group plans to launch RM2.47bn properties in its various townships in 2H21.

Outlook. Management noted that sales have started to slow down considerably since June from NRP Phase 1 impact. Hence we are expecting a weaker 3Q in view of lower sales and progressive billings as well as slower sales conversion. Nevertheless, we reckon that the group is able to achieve its full year sales target of RM3.8bn having already achieved 71% as well as buoyed by healthy bookings of RM954m (with historical conversion rate of 50%). Elsewhere, current vaccination rate for its construction worker are at c.50% and management is accelerating its vaccination to increase its operation activities in the coming month (in line with the recent reopening measures).

Forecast. Maintain as results were in line. Maintain HOLD rating with an unchanged TP of RM0.95 on an unchanged discount at 80% to RNAV of RM4.74. Despite the encouraging sales in current quarter, we believe the rising Covid-19 cases and ongoing lockdown restrictions will weigh down the property market sentiment in the near term.

Source: Hong Leong Investment Bank Research - 19 Aug 2021