INVESTMENT HIGHLIGHTS

• FY17 earnings above expectations

• New property sales at RM4.06b

• FY18 new sales target at RM5.0b.

• Lower contribution from local projects

• Maintain BUY with unchanged TP of RM4.13

FY17 earnings above expectations. S P Setia FY17 core net income of RM810.2m came in above expectations, making up 112% and 107% of our and consensus estimates. The positive deviation could be attributed to the higher-than-expected margin achieved in 4QFY17. Dividend of 11.5sen/share was announced for FY17, bringing cumulative dividend per share to 15.5sen.

New property sales at RM4.06b. S P Setia achieved new sales of RM1.24b in 4QFY17, higher than new sales of RM750m in 3QFY17. That brought total new sales in FY17 to RM4.06b, meeting management and our new sales target of RM4b. FY17 new sales of RM4b is higher than new sales of RM3.8b in FY16. Meanwhile, I&P Group recorded new sales of RM859m in FY17, enlarging S P Setia group total sales to RM4.92b for FY17. In FY17, local projects contributed RM3.4b or 69% of the total new sales with the remaining from international project.

FY18 new sales target at RM5.0b. Looking forward, management set its new sales target at RM5.0b for FY18 on the back of planned launches with GDV of RM7.07b (61% local projects and 39% overseas projects).

Lower contribution from local projects. FY17 core net income of RM810.2m decreased by 11%yoy mainly due to lower progress billing of local projects as substantial sold developments still at early stage of construction. Meanwhile, unbilled sales increased to RM7.72b in 4QFY17 from RM7.05b in 3QFY17, providing earnings visibility for 1.9 years.

Maintain BUY with TP of RM4.13. We revised upwards earnings forecast for FY18 by 1.3% to factor in higher margin assumption. Our Target Price is unchanged at RM4.13, based on 10% discount to RNAV. We maintain our BUY call on S P Setia for its plan to be included as one of the FBM KLCI component stocks. Besides, we expect the acquisition of I&P to create synergy for S P Setia. Meanwhile, dividend yield is attractive at 4.8%.

Source: MIDF Research - 28 Feb 2018