• FY16 earnings above expectation

• FY16 sales of RM3.82b is ahead of its target of RM3.5b.

• Sales target of RM4.0b in FY17.

• Maintain NEUTRAL with higher TP of RM3.40

FY16 earnings above expectation. SP Setia Berhad (SPSETIA) FY16 core net income of RM764m met consensus estimate of RM761m. However, it is ahead of our estimate possibly due to better than expected margin from Parque Melbourne project in Australia. A final dividend of 16 sen is announced and this bring total dividend to 20 sen for FY16 representing 5.9% dividend yield.

Revenue was supported by ongoing projects in Malaysia and overseas. Major projects in Malaysia include Setia Alam and Setia Eco Park in Shah Alam, Setia EcoHill in Semenyih, Setia Eco Glades in Cyberjaya and Setia Sky Residences at Jalan Tun Razak KL. Overseas project include Eco Sanctuary in Singapore, Battersea Power Station in London and Parque Melbourne in Australia. Unbilled sales of RM8.25b provide earnings visibility for 1.7 years.

FY16 sales of RM3.82b is ahead of its target of RM3.5b. The biggest sales contributor in FY16 is Central Region with RM2.64b of sales or 69% contribution followed by Southern Region (RM467m sales / 13% contribution).

Sales target of RM4.0b in FY17. The Company plans to launch 7355 units of properties with combined GDV of RM5.41b in FY17. For the sales target of RM4.0b, 56% is targeted from Central Region followed by International (23%), Southern Region (10%), Northern Region (6%) and Eastern Region (5%). For the International sales, it will be driven by Exhibition Street Melbourne project (GDV: AUD640m).

Maintain NEUTRAL with higher TP of RM3.40. FY17 CNI forecast is raised by 2% to RM724m while Target Price has been increased to RM3.40 (from RM3.38). We have assumed higher margin for Parque Melbourne project. Valuation method is unchanged by using 15% discount to RNAV. While upside to the share price should be limited due to challenging property market outlook, downside is also limited due to its good dividend yield.

Source: MIDF Research - 24 Feb 2017