INVESTMENT HIGHLIGHTS

• 1QFY19 earnings above our expectation

• Earnings driven by strong sales in 4QFY18

• 1QFY19 new sales at RM718m

• Upgrade to BUY with an unchanged TP of RM2.53

1QFY19 earnings above our expectation. S P Setia 1QFY19 core net income of RM85m came in above our expectation, making up 32% of our full year estimate. The positive deviation is attributable to fasterthan-expected progress billing in 1QFY19. However, the core net income figure is slightly below consensus expectation, making up 19% of consensus full year estimate.

Earnings driven by strong sales in 4QFY18. 1QFY19 core net income was higher on sequential basis (+46.7%qoq) and yearly basis (+94.2%yoy), driven by revenue recognition from strong new property sales registered in 4QFY18 of townships in Central and Southern regions. Note that sales from the two regions contributed RM1.63b or 32% of total new sales in FY18. Meanwhile, unbilled sales declined to RM10.95b in 1QFY19 from RM12.3b in 4QFY18, providing 3 years earnings visibility.

1QFY19 new sales at RM718m. S P Setia recorded new sales of RM718m in 1QFY19, lower than new sales of RM1.9b in 4QFY18 due to “wait-and-see” attitude of property buyers. Local projects contributed 94% of the total new sales while international projects contributed 6% of the total sales. 1QFY19 new sales made up only 13% of management new sales target of RM5.65b for FY19. Nevertheless, management is maintaining its new sales target of RM5.65b with planned launches with total GDV of RM6.47b for the remaining part of FY19.

Upgrade to BUY from Neutral with an unchanged TP of RM2.53. We revise upwards our FY19/20F earnings forecasts by 19%/13% to factor in the faster-than-expected progress billing of local projects. Our TP if maintained at RM2.53, based on 43% discount to RNAV. We upgrade our call on S P Setia to BUY from Neutral as we see value has emerged following the weakness in share price. S P Setia is trading at 42% discount to its latest NTA per share of RM3.60, making its valuation looks appealing. Completion of sale of Phase 2 of Battersea in March 2019 is also positive to S P Setia.

Source: MIDF Research - 10 May 2019