Below expectations.SP Setia's 1QFY13's net profit came in below expectations on an annualised basis. However, 1H numbers are typically weaker, making up less than 50% of full year earnings. Therefore, we are not concern on the weak 1Q profit. EBIT margin shrunk to 13% from 21% in 4QFY12, due to the handovers of some residential and commercial properties in Klang Valley and JB. We believe this will normalise, as the construction of the higher-valued projects progresses further.

RM2.02bn property sales thus far. Four months into the financial year, SP Setia achieved RM2.02bn sales. On an annualised basis, the sales would surpass management's target of RM5.5bn. The key sales contributors in the four months are mainly from the Johor projects - Bukit Indah, Eco Gardens, Sky 88, as well as Eco Glades in Cyberjaya, Setia Alam, and Eco Sanctuary in Singapore. EcoHill in Semenyih was launched during the period. We believe the overseas projects will kick in materially over the next few quarters, particularly the Battersea Power Station, and hence we are confident that SP Setia will be able to hit its sales target for the year. Since the launch of the Battersea project, Phase 1 of 800 units released has achieved 95% booking. SPA will be signed from next month onwards.

Forecasts.Unchanged.

Investment case.We raise our fair value slightly to RM3.76 (from RM3.66), at 15% discount to RNAV, after updating the landbank data. We believe the recent rerating in many property stocks is short-lived, and sentiment will turn cautious as we move closer to the election date. Therefore, despite the higher fair value, we maintain our Neutral rating on the stock.

Source: RHB