Fair Value : RM3.66 | Recom : Market Perform (Maintained)

Above expectations. SP Setia’s 4QFY12 core net profit beat our and market consensus by 6-9%. Note that, the headline net profit in FY11 included a oneoff gain arising from the transfer of Tenby School complex from Setia Alam to Eco Park. Operating margin expanded to 23.1% from 17.5% in last year, due to the increase in product pricing. Meanwhile, the net gearing surged to 57.8% from net cash last year, which signifies the need for equity calls.

Sales overview. A total record sales of RM4.23bn was achieved for FY12. Property sales for Setia Alam and Eco Park fell 3% and 24% from FY11, as the area was getting saturated. As such, sales from the Klang Valley region were largely made up by the boost from EcoCity. Townships in Johor, however, experienced a single-digit growth. The sales for the Penang region dropped by RM73m to RM245m, as SP Setia was not aggressive in its launches in Penang throughout this year. The Fulton Lane, 18 Woodsville and Aeropod projects helped contribute to the overall increase in sales in FY12.

New sales target of RM5.5bn. Based on our estimate, this is achievable and the additional RM1.3bn sales from FY12 sales will mainly come from the overseas projects – The Battersea Power Station (800 units worth a GDV of ₤800m), Eco Sanctuary in Singapore (RM1.1bn) and Parque Melbourne (RM800m). The existing township projects in the Klang Valley – Setia Alam and Eco Park are expected to maintain at about RM1bn sales, and EcoCity and the Johor projects are likely to contribute RM1bn respectively. Eco Glades and other projects in Penang and Sabah, as well as the new EcoHill Rinching (with bungalow land lots pricing at RM100 psf) will make up the balance. Launches at Setia Indah will be slowed down to capture the future value appreciation from the upcoming transport hub at Kempas. As for the Battersea project, Ph. 1 will be launched in Jan 2013. We expect a decent take-up of around 500-600 units or 70-75%. Key buyers are likely to be the Malaysians. Attractive discount of up to 6.5% is given to draw first batch buyers. We reiterate that, while we are not too concerned over the sales, especially the initial phase, the risks would lie in the subsequent phases given the large scale of the project and execution of the development due to high level of restrictions on heritage sites.

Forecasts. We finetune our FY13-14 earnings up by 7-8%. Our new FY15 earnings will see the contribution from the Melbourne projects.  

Valuations. No change to our Market Perform rating on the stock. Our FV is, however, adjusted to RM3.66 (from RM3.64) at 15% discount to RNAV, to account for the value contribution from the recently acquired British High Comm. land. Despite the bullish sales target, key concerns on the stock include the long-term leadership plan, the expected share overhang subsequent to the completion of placement exercise and the general election risk.

Source: RHB Research - 13 Dec 2012