Period

14MFY15

Actual vs. Expectations

14MFY15 core earnings (CNP) of RM918m is a record high for SETIA, which beat expectations, by 47% of street’s full-year estimates and by 20% of ours. It was largely driven by changes in accounting policies regarding assessment of completed projects (refer overleaf)1.

14MFY15 sales of RM4.3b exceeded our and management’s revised target of RM4.0b2; Klang Valley (52%) and Battersea (28%).

Dividends

Proposed final dividend of 19.0 sen (single-tier), bringing FY15E NDPS to 23.0 sen (8.0% yield), which more than exceeded our forecast of 15.0 sen.

Key Results Highlights

QoQ/YoY comparables are not available due to the changes in year-end. 14MFY15 CNP rose by 154% vs. FY14 largely due to their first major overseas project delivery namely, Fulton Lane@Melbourne, while the last two months of FPE15 was driven by the restatement of completed projects.

Outlook

Targeting FY16E sales of RM4.0b (refer overleaf)

Investors can look forward to lumpy recognitions from the completion of Battersea Ph 1 over FY16-17. Meanwhile, Battersea Ph 3A take-up rate is at 60%.

Change to Forecasts

Increasing FY16E earnings by 12% (refer overleaf). Unbilled sales of RM9.20b provide 2-3 years visibility.

Rating

Maintain MARKET PERFORM

Valuation

SPSETIA appears to be making new historical trough levels as the last price implies 8.4x FY16E PER while yields also look compelling. However, it lacks nearterm catalysts while investors’ confidence hinges on a permanent management team albeit the strong financials of the company. While we gather that the bulk of Battersea buyers are locals, the negative sentiment clouding the ‘Brexit’ issue may overshadow SETIA’s stellar earnings deliveries over FY16-17E.

We are also revisiting our sector valuations with a downside bias. Thus, we opt to widen our FD RNAV discount factor to 45%, or close to -1SD, (from 38%) on our FD RNAV of RM5.61, resulting in a lower TP of RM3.08 (from RM3.50).

Risks

(i) Weaker-than-expected property sales. (ii) Higherthan- expected sales and administrative costs. (iii) Negative real estate policies. (iv) Tighter lending environments. (v) Vacuum in long-term management team.

Source: Kenanga Research - 26 Feb 2016