Highlights

We met with the management of SP Setia (SPSB) for some updates, and the key highlights are:

Sales record to be smashed. SPSB expressed confidence its RM5.5bn sales target would be comfortably exceeded, underpinned by YTD 8 months sales of RM4.68bn (as of Jun 2013). The largest contributors were Greater KL (RM1.5bn) and Battersea Power Station (BPS) with RM1.2bn sales (based on SPSB’s 40% stake).

Cautious stance on IDR. Despite the strong takeup of Setia Sky 88 (Towers 1 & 2 already 100% sold at RM1,000psf), we were surprised to learn that SPSB is being cautious on the market there, as it feels that sustainable local demand may be unable to keep up with the incoming supply, coupled with locals generally being priced out of the market

Keeping up the momentum. SPSP continues to roll out a healthy pipeline of projects. Setia Eco Hill @ Seminyih will be a massive township with RM4bn overall GDV, and SPSB plans to replicate its highly successful Setia Alam concept there, with Phase 1 to be launched soon. Another project to be launched this quarter is Parque Melbourne, to comprise of two residential blocks with RM800m GDV.

Greater KL remains the mainstay, with management eying the Southern Corridor such as Cyberjaya and Semenyih as its main priority in terms of landbank replenishment, given it sees limited opportunities in Penang and IDR. Of note, SPSB already has more than 1,000 acres of landbank in IDR, being one of the first movers in the market there. As for international landbanking, SPSB continues to be selective and we believe that its acquisitions will continue to be niche in nature, likely featuring mid to high-rise projects, similar to Fulton Lane in Melbourne.

Risks

Slowdown in sales; escalation in construction and raw material costs; delays in launches.

Forecasts

Maintained.

Rating

HOLD.

Positives: Strong product concepts and pipeline; consistent dividends.

Negatives: No longer the most liquid property stock in Malaysia.

Valuation

While its operations remain on-track, we believe concerns over management stability following Tan Sri Liew’s departure will linger and weigh on share price.

Maintain TP at RM3.35 (maintain 25% discount to FD RNAV), due to lack of fresh rerating catalyst as well as limited upside with the current negative sentiment surrounding the property sector. Maintain HOLD.

Source: Hong Leong Investment Bank Research - 17 Sep 2013