INVESTMENT HIGHLIGHTS

• FY18 earnings below expectations

• Lower full year earnings due to high base effect

• New sales of RM5.1b in FY18

• New sales target of RM5.65b for FY19

• Downgrade to Neutral with an unchanged TP of RM2.53

FY18 earnings below expectations. S P Setia FY18 core net income of RM242.5m came in below expectations, meeting only 80% and 56% of our and consensus full year estimates. The negative deviation could be attributed to the slower than expected progress billing in 4QFY18. Dividend of 4.55sen per share was announced, bringing total dividend to 8.55sen per share in FY18 which is in line with our expectation.

Lower full year earnings due to high base effect. 4QFY18 core net income came in lower at RM58m (-79.8%yoy) as last year’s earnings were boosted by significant profit contribution from the completion of Phase 1 of the Battersea Power Station. Cumulatively, FY18 core net income came in lower at RM242.5m (-76.4%yoy). The lower earnings in FY18 were due to lower progress billing of local projects and high base effect in FY17. Note that we have excluded a RM311m one-off provisional fair value gain arising from the re-measurement of equity stake in Setia Federal Hill Sdn Bhd in our core net income calculations. Meanwhile, unbilled sales increased to RM12.3b in 4QFY18 from RM7.92b in 3QFY18.

New sales of RM5.1b in FY18. S P Setia registered new property sales of RM1.9b in 4QFY18, higher than new sales of RM1.1b in 3QFY18. That brought total new sales to RM5.1b in FY18, slightly ahead of management new sales target of RM5b for FY18. Local projects contributed 80% of total new sales in FY18 while the remaining 20% new sales were from international projects. Looking ahead, S P Setia targets to launch projects with total GDV of RM6.8b in FY19, comprising RM6.66b from local projects while international launches comprised of new phases in Eco Lakes and Eco Xuan in Vietnam. Looking ahead, management sets new sales target of RM5.65b for FY19 and expects 89% of new sales to come from local projects.

Source: MIDF Research - 28 Feb 2019