SP Setia’s FY21 earnings of RM126.9m (+173.5% YoY) matched expectation. Overall, FY21 core PATMI almost tripled contributed by higher revenue by as well as profitable share of JVs and associate driven by better performance of Battersea projects. FY21 recorded RM4.26bn of sales (includes RM222m of land sales). For FY22, management is setting sales target of RM4bn (-6% YoY) supported by planned new launches of RM4.25bn GDV. Maintain HOLD rating with an unchanged TP of RM1.26 based on 75% discount to RNAV of RM4.93. Despite the encouraging property sales and expectation of better recovery ahead, we remain concerned on SP Setia’s high gearing as we believe earnings will remain under pressure from its high financial obligation.

Within expectations. 4Q21 core earnings of RM86.5m (3Q21 losses of -RM73.5m; +5.7% YoY), brought FY21’s sum to RM126.9m (+173.5% YoY). The results were within our (105%) but below consensus expectation (64%). Note that we derived FY21 core PATMI number after including payments to holders of RCPS (RM132m), while it may not be the case for consensus figures.

QoQ. 4Q21 recorded profit of RM86.5m (vs losses of -RM73.5m in 3Q21) attributable to higher revenue (+73.7% QoQ) from the higher progress billing recognition following normalization of construction activity as well as higher sales achieved prior to ending of HOC.

YoY. Despite lower revenue by -7.3%, core PATMI showed a growth of 5.7% from profitable share of JVs and associate (+RM27.8m in 4Q21 vs -RM18.2m in 4Q20) driven by better performance of Battersea.

YTD. Core PATMI almost tripled contributed by higher revenue by 16.6% as well as profitable share of JVs and associate from the reason mentioned above.

Sales and launches. RM876m worth of sales was achieved in 4Q21, bringing FY21 sales to RM4.26bn (includes RM222m of land sales), exceeding sales target of RM3.8bn. FY21 sales came from: (i) Central Region: RM2.76bn; other domestic region RM739m and; (iii) International Region: RM762m. Of the total sales, completed inventories consisted of RM754m while sales from HOC was RM2.2bn (62% of local sales). Unbilled sales increased to RM10.21bn as of 4Q21 (+4.2% QoQ), representing a cover ratio of 2.9x. For FY21, the group had launched GDV worth RM2.24bn (falling short of their target RM2.7bn) largely comprised of landed properties, mainly at established townships.

Outlook. Management noted that bookings have been encouraging with RM555m as of 4Q21. For FY22, management is setting sales target of RM4bn (-6% YoY) supported by planned new launches of RM4.25bn GDV. About 58% of the launches will be priced below RM1m to cater to current market demand of mid-range products. Despite expectation of better recovery in FY22, we remain cautious with SP Setia’s high gearing of 0.96x including RCPS (which has inched up from 0.95x in 3Q21).

Forecast. Unchanged

Maintain HOLD rating with an unchanged TP of RM1.26 based on 75% discount to RNAV of RM4.93. Despite the encouraging property sales and expectation of better recovery ahead, we remain concerned on SP Setia’s high gearing as we believe earnings will remain under pressure from the high financial obligation.

Source: Hong Leong Investment Bank Research - 1 Mar 2022