INVESTMENT HIGHLIGHTS

• 1QFY18 earnings below expectations

• Lower earnings

• New sales of RM1.11b in 1QFY18

• Earnings forecast reduced

• Maintain BUY with a revised TP of RM3.69

1QFY18 earnings below expectations. S P Setia 1QFY18 core net income of RM43.8m came in within below expectations, making up only 5% and 6% of our and consensus full year estimates. The negative deviation could be attributed to could be lower contribution from Australia project and lower than expected progress billing.

Lower earnings. 1QFY18 core net income fell 61%yoy to RM43.8m due to lower contribution from Parque Melbourne project. Recall that last year earnings were driven by lumpy recognition from the Australia project upon settlement based on completion method. Meanwhile, unbilled sales increased marginally to RM7.95b in 1QFY18 from RM7.72b in 4QFY17, providing earnings visibility for 1.8 years.

New sales of RM1.11b in 1QFY18. S P Setia registered new sales of RM1.11b in 1QFY18. Local projects contributed RM635.6m or 58% of total new sales in 1QFY18 while the remaining 42% new sales were from international project. New sales in 1QFY18 make up 22% of management new sales target of RM5b for FY18. Looking forward, S P Setia is planning to launch projects with GDV of RM5.57b from second quarter onwards. Projects to be launched are located in Klang Valley, Johor, Penang and Singapore.

Maintain BUY with a revised TP of RM3.69. We revise downwards our FY18/19F earnings forecast by 30%/34% to take into account lower contribution from Australian project. We revise our TP for S P Setia to RM3.69 from RM4.15 as we widen our RNAV discount to 20% from 10% in view of the lower earnings visibility in near-term. Nevertheless, we are maintaining our BUY call of S P Setia as we expect the acquisition of I&P to create synergy for S P Setia.

Source: MIDF Research - 15 May 2018