1HFY21 CNP of RM114.2m is within our (at 59%), but below consensus (at 38%), estimates, likely due to the latter’s overly bullish recovery projections for 2HFY21. 1HFY21 sales of RM2.7b is broadly within our/management’s unchanged RM3.8b target. We expect upcoming quarter to register losses due to slower construction activities and RCPS payment before rebounding back in 4QFY21. Post results, earnings estimates, MP call and TP of RM1.19 based on FY22E PBV of 0.4x are maintained.

Within our estimate but below consensus’. 2QFY21 CNP of RM73.7m brought 1HFY21 CNP to RM114.2m – within our FY21 expectation at 59% but below consensus’ at 38%. We believe consensus estimates may be overly bullish on their recovery projections for 2HFY21. No dividends, as expected.

2QFY21 sales of RM1.52b lifted 1HFY21 sales to RM2.7b – accounting for 71% of our/management’s RM3.8b target. Despite the strong performance, we deem it broadly within our estimate and maintain our sales target amidst the uncertainties surrounding the pandemic. Note that management has earmarked RM2.47b worth of launches in 2HFY21 (vs RM1.2b in 1HFY21).

Highlights. QoQ, 2QFY21 CNP of RM73.7m increased 82% mainly because 1QFY21 was weighed down by the semi-annual RCPS dividend distribution* of RM66m. For comparable purposes, without such distribution in 1QFY21, 2QFY21 CNP would have come in weaker by 31% due to higher administration expenses (+35%) incurred. YoY, 1HFY21 CNP of RM114.2m swung back into the black from a loss position of RM52.1m, attributable to stronger top-line contribution (+107%) as 1HFY20’s productivity was severely impacted by the first MCO back in March 2020.

*RCPS distribution occur every 1Q and 3Q.

Outlook. Currently, SP Setia’s construction sites are operating at slightly below 60% due to the 60% operational capacity ceiling imposed. SP Setia’s staff are c.80% vaccinated while the construction workers at the sub-con level are c.50% vaccinated. Management is guiding higher operational productivity by Sept 2021 as workers within their sites surpass 60% vaccination rate – which would allow the capacity ceiling to increase to 80% (from 60%). Unbilled sales of RM10.3b provide two years of earnings visibility allowing for some buffer during this challenging period.

3QFY21 to incur losses. We expect SP Setia to incur losses in 3QFY21 on the back of: (i) slower construction works, and (ii) RCPS distributions of RM66m. That said, we expect earnings to rebound in 4QFY21 when economic activities gradually re-open as lockdown rules ease on the back of higher national vaccination rates. Keep FY21/22E earnings estimates  unchanged.

Maintain Market Perform and Target Price of RM1.19 based on an unchanged FY22E PBV of 0.40x (-1.5SD). Being the largest developer in the country, we view SP Setia as a proxy for the sector’s outlook which appears challenging in the near-to-medium term, plagued by affordability, oversupply and policy issues.

Risks to our call include: (i) lower-than-expected property sales, (ii) margin fluctuations, (iii) changes in real estate policies and lending environment, (iv) cash-calls, and (v) timing of overseas/local billings

Source: Kenanga Research - 19 Aug 2021