Core net profit leaped 63% yoy excluding forex in 9M17, representing 69% of full-year consensus forecast of RM754m. SP Setia achieved stronger property sales of RM2.82bn (+38% yoy) in 9M17, driven by strong take-up rate (83%) for Sapphire by the Gardens, Melbourne, and Battersea, UK, projects. The company expects stronger contribution from its international projects given the subdued local market, while it remains confident in achieving sales target of RM4bn. The high unbilled sales of RM7.05bn should sustain earnings moving forward. It declared a 4 sen interim dividend.

Supported by Associate Earnings

For 9M17, revenue dropped 19% yoy to RM2.6bn in tandem with a 21% yoy decline in property development revenue to RM2.3bn due to the completion of several phases of KL Eco City in Malaysia, Eco Sanctuary in Singapore, and PPA1M in Putrajaya last year. In 3Q17, pre-tax profit increased by 68% qoq mainly supported by higher associate earnings (+97% qoq), attributable to remaining contribution from the Phase 1 Battersea Power Station project. Thus, core net profit leaped 63% yoy to RM518m in 9M17, representing 69% of full-year consensus forecast of RM754m.

Strong Sales Momentum

SP Setia has achieved RM2.82bn (+38% yoy) property sales in 9M17, 71% of its FY17 sales target of RM4bn. The sales were mainly driven by strong take-up rate of 83% for Sapphire by the Gardens in Melbourne, Australia. International projects contributed RM1.16bn or 41% of the total sales, while domestic market remain lagged at RM1.66bn. Moving forward, the company will change its focus to launch more mid-priced landed properties with planned launch value of RM2.03bn in Setia Alam, Setia EcoHill, Setia Eco Templer and KL Eco City.

Expansion Via Acquisitions

SP Setia proposed on 14 April 2017 to acquire I&P Group Sdn Bhd for 3.65bn from Permodalan Nasional Bhd (PNB) and Bangi Estates for RM447.5m. PNB is consolidating the two property companies in its stable to increase operational efficiency and to attain synergistic benefits.

Affin Hwang Investment Bank is the independent adviser for the proposed I&P and Bangi land acquisitions to advise the non-interested shareholders and directors of SP Setia.

Source: Affin Hwang Research - 10 Nov 2017