S P Setia Berhad (SPSETIA, 8664) has unveiled remarkable sales achievements in the first half of 2023, reinforcing its steadfast position in the real estate sector. The vision and strategic policies of SPSETIA have yielded significant outcomes, as the total sales for the period reached RM2.56 billion, achieving approximately 60.00% of the sales target for the FY2023.

However, the recently announced second-quarter performance of the company reveals a decline in both revenue and net profit, whether compared on a Year-on-Year (YoY) or Quarter-on-Quarter (QoQ) basis. Despite this, the stock price of SPSETIA has displayed an upward trend after the quarterly report was published. Why is this the case?

Reportedly, the Malaysian property market is expected to benefit from positive factors in the latter half of this year, including expectations of stable interest rates, the resolution of labor shortages, a slowdown in construction costs (rebar prices in May dropped by 21.80% from mid-2022 peak), and an increase in loan approval rates. Therefore, the market holds a confident outlook for the Malaysian real estate prospects in the second half of the year.

Now, let's delve into the latest performance of SPSETIA to uncover the points that have captured investors' attention.

Revenue Comparison (YoY -7.84%, QoQ -2.57%)

As of June 30, 2023 (Q2FY2023), the company's revenue stood at approximately RM942.72 million, a decrease of around 7.84% compared to the same period last year, which recorded about RM1.018 billion. This decline was attributed to reduced property sales in Singapore and the Central region of Malaysia.

In comparison to the previous quarter, the company's revenue also decreased by about RM24.95 million or 2.57%. However, the gross profit margin for the quarter stood at around 33.02%, higher than the previous quarter's approximately 27.55%. This increase is primarily attributed to cost savings from completed projects.

Net Profit Comparison (YoY -46.23%, QoQ -22.34%)

Due to rising interest rates and unfavorable exchange rate trends, the company's net profit decreased by around 46.23% YoY and about 22.34% QoQ to approximately RM43.06 million. Looking at the quarterly report, the company's finance costs increased by 56.80% to approximately RM94.09 million compared to the same period last year, due to higher interest rates.

Furthermore, the continuous widening of losses in the company's joint venture with Battlesea in the UK has also caused the decline in net profit for this quarter.

It is worth mentioning that the company's gearing ratio has decreased from 0.57 times in the FY2022 to 0.55 times, and it holds significant cash reserves of about RM2.93 billion to cope the challenges posed by inflation and high interest rates.

Outlook

The company will continue to sell non-strategic land and non-core assets to reduce its debt levels and enhance its financial position. In June and July of this year, the company announced the sale of 500.00 acres of land in Semenyih, Selangor, and 959.70 acres of land in Tebrau, Johor. As a result, the company is set to gain approximately RM940.00 million from land sales.

Moreover, the total unbilled sales as of June 30, 2023, reached RM6.82 billion, coupled with 44 ongoing projects, indicating a strong outlook for SPSETIA's future earnings prospects. Additionally, the company's effective remaining land bank stands at 6,870.00 acres, with a total development value of RM125.77 billion.

In summary, the management remains optimistic about the performance in the FY2023. So, dear readers, what are your thoughts on SPSETIA, with a Price-to-Earnings ratio of approximately 13.55 and a Net Tangible Asset value of around RM3.01?