1Q17 CNP of RM105m and 4M17 sales of RM801m came broadly within expectations. No dividends, as expected. Investors are now waiting for the funding details of the I&P acquisition. Maintain earnings. Reiterate OUTPERFORM with unchanged TP of RM3.86.

1Q17 CNP of RM105m is deemed broadly within expectations

even though it makes up 14% each of street’s and our estimates as we expect the coming quarters to see lumpy contributions from Battersea Ph 1. 4M17 sales of RM801m was also broadly within expectations at RM801m, mainly driven by Klang Valley (66%), and we expect stronger quarters ahead since c. 90% of their RM5.0b project pipeline has yet to be launched. Note that 1Q17 sales was only at RM425m. No dividends, as expected.

Less Battersea Ph 1 recognition. QoQ, 1Q17 CNP fell 75% as there was significantly less associate Battersea Ph 1 recognition while local billings were seasonally weak. YoY, 1Q17 CNP was down by 15% largely due to higher overheads and reduced other operating income. Net gearing remains steady at 0.19x.

Awaiting details of the acquisition of I&P. Last month, the group signed an MOI to acquire I&P from PNB and ASB for RM3.50- RM3.75b. Finalization of the acquisition price and funding structure will be made known in less than three months’ time. Given SPSETIA’s ambition to achieve the RM15.0b market capitalisation size for inclusion in the FBMKLCI, we believe a 1-for-2 rights issue is likely. We view the acquisition positively (refer to 17/4/17 report).

No change to earnings as we maintain FY17-18E sales at RM4.0bRM4.2b. Unbilled sales of RM7.84b provides 2-year visibility.

Reiterate OUTPERFORM with unchanged TP of RM3.86 based on a discount of 35% (+1.0SD) to its FD RNAV of RM5.73. The stock is expected to fare well given the accretive acquisition of I&P while we believe that property stocks are due for a re-rating given the better broad market performance on the back of reduced sales and earnings risks.

Risks include: (i) weaker property sales, (ii) margin fluctuations, (iii) changes in real estate policies and lending environment, and (iv) timing of overseas/local billings.

Source: Kenanga Research - 12 May 2017