Period   2Q13 / 1H13

Actual vs. Expectations   1H13 net profit of RM189m is deemed ‘broadly inline’ although it only  made  up  41%  each  of street and our estimates. 1Hs tend to make up less than 45% of full-year estimates. 

7M13 sales of RM4.4b exceeded full FY12 sales largely due to Battersea. YTD sales are proportionately ahead as it made up c. 80% of SPSETIA and our FY13E sales target of RM5.5b

Dividends   Interim dividend comprising of GDPS of 1.6 sen plus single-tier 2.4 sen. Effective NDPS is 3.6 sen or 42% of our FY13E NDPS of 8.5 sen (2.5%). 

Key Results Highlights   YoY, 1H13 earnings rose by 13%. Topline was up by 26% to RM1.4b given strong sales and corresponding billings while gross margins were slightly down by 1.4ppt to 30.5% from changes in project mix. Still, interest expense was the drag as it rose to RM25.8m from 1H12’s RM2.4m. This was due to heavy landbanking activities over the last 12 months, resulting in total borrowings increasing by 66% to RM4.1b. 

QoQ,  2Q13  net  profit  was  only  up  by  3%  to RM96m. Gross margins rose by 2.0ppt to 30.5% largely due to higher margin project mix but was negated by a higher effective tax rate of 27% (1Q13: 20%) from non-deductible expenses. Positively, post placement, the group’s net gearing of 0.33x is at more comfortable levels. 

Outlook    Tan Sri Liew mentioned that the cessation of DIBS is healthy for the sector’s long-term health as it helps to weed out speculators. His opines that the sector requires a much need cooling phase given the strong capital value run-ups over the last 2 years. He lamented that land prices have also become unrealistic but did say SPSETIA is positioned well given a wide array of landbanks, meaning they are not under pressure to acquire additional landbanks over the next two years. He remains confident on the RM5.5b sales target by leveraging on its overseas drivers (e.g. Battersea) and the Setia branding. 

Change to Forecasts    No changes to estimates. Unbilled sales are at a record high of RM8.7b which implies 3-years visibility. The swell was driven by Battersea@London and Australian projects where recognition of sales is on completion. 

Rating  UNDER REVIEW (previous MP)

All our developers' CALLs/TPs are currently under review pending our 3Q13 strategy, which will be released next week. Our previous TP was RM3.80 on 30% discount FD RNAV of RM5.46.

Risks  Sector risks.

Source: Kenanga