Period a 4Q13/ FY13

Actual vs. Expectations FY13 earnings of RM418m came in broadly within expectations, at 94% if consensus estimates, and spot-on with our estimates. We believe the additional LTIP expenses in 4Q13 may be the reason for SP Setia (SPSETIA) slightly missing consensus estimates; note that we had imputed for this in the last quarter.

 FY13 is a record year with sales of RM8.2b (+95% YoY) which far exceeded SPSETIA’s initial sales target of RM5.5b and our earlier revised target of RM7.0b (refer overleaf).

Dividends  Final dividend of 7.0 sen (single-tier) implying total FY13 NDPS of 10.6 sen (3.4% yield) or a 62.4% payout. It exceeded our expectations by 43%. The company has also proposed a Dividend Reinvestment Plan (DRP) (refer overleaf).

Key Results Highlights QoQ, 4Q13 earnings rose by 25% largely due to a 105% increase in other operating incomes, which were sufficient to negate the sharp 60% rise in finance costs.

 YoY, 4Q13 PBT fell by 7% largely due to RM12m LTIP expense during the quarter while 4Q12 registered gross gains on land disposal to SEGi of RM33m. Stripping-out those items, 4Q13 PBT actually increased 21%.

 YoY, FY13 topline grew 21% while earnings were only higher by 6% due to 7.3ppt compression in gross margins. FY13 earnings were largely driven by Johor and Klang Valley, making up 51% and 32% of PBT, respectively. Although the Singapore and commercial (e.g. KLEC) projects have commenced contributions, these have dragged margins down as these are at preliminary construction stages.

Outlook  Surprisingly, management has postponed its sales target guidance, citing reasons of recent property tightening measures and its current ‘high base’ effect which has clouded visibility and indicated they need to reassess the situation before providing further guidance. However, management believes that the affordable segment will remain strong and will skew projects towards that direction.

Change to Forecasts Lowering FY14E earnings by 10%. One of the reasons is that our sales estimates are revised down by 16% to RM6.1b. Record unbilled sales of RM11.1b provide 2.5 years visibility. (Refer overleaf).

Rating Maintain MARKET PERFORM

Valuation  Lowering TP to RM3.25 (from RM3.60) based on wider FD RNAV discount of 40% (from 34%) to its FD RNAV of RM5.46. Our TP implies FY14E PBV at -1.5SD of its three-year average as the company will face challenges given that its future sales may weaken from the high-base effect, lack of visibility in future launches and investors needing to adjust to new leadership. We may review our earnings/TP pending future sales guidance from management. Nonetheless, we maintain our MARKET PERFORM call as the stock is trading near trough valuations.

Risks  Sector risks. Changes in management/leadership.

Source: Kenanga