INVESTMENT HIGHLIGHTS

• 1HFY19 earnings within expectation

• Demand for landed properties drove sales in 1HFY19

• 1HFY19 new sales at RM1.98b

• Maintain BUY with an unchanged TP of RM2.53

1HFY19 earnings above our expectation. S P Setia 1HFY19 core net income (CNI) of RM152.7m came in within our expectation, making up 49% of our full year estimates and 43.1% of consensus’ expectation. We have excluded the gain from the sale of the former British Embassy Land in Jalan Ampang amounting to RM35.8m and forex gain of RM35.3m from our CNI.

Demand for landed properties drove sales in 1HFY19. 1HFY19 CNI of RM152.7m jumped 40.8%yoy as revenue increased by 10.7% yoy to RM1.75b. This is driven by a strong pipeline of new launches as well as sales of completed units worth RM307m. Projects that contributed to revenue and profit during the period include: Setia Alam, Setia Eco Park, Setia Eco Hill and Setia Eco Glades among others. Meanwhile, unbilled sales is largely unchanged at RM10.67b as of 2Q19 versus RM10.95b in 1QFY19, providing 3 years earnings visibility. The company is expected to continue to launch new products with right sizing and prices in its mature townships.

1HFY19 new sales at RM1.98b. Ytd, S P Setia recorded new sales of RM1.98b for the first half as 2Q19 contributed higher sales than 1Q19 at RM1.26b. Local projects contributed 87% of the total new sales while international projects contributed 13% of the total sales. Management has revised FY19 sales target from RM5.65b previously to RM4.55b. We believe that the new target is achievable as new sales for the first half has made up 43.5% of the target while this could also be supported by the planned launches with GDV of RM3.33b for 2HFY19. The focus will be on landed properties in mature townships particularly in the central region. We also expect the extended Home Ownership Campaign (HOC) to encourage home buyers to purchase their property during the campaign. During the period, 43% or RM734m of local sales are from the HOC.

Maintain BUY from an unchanged TP of RM2.53. We maintain our earnings forecast for FY19F and FY20F as the results are in-line. Our TP of RM2.53 is based on 43% discount to RNAV. Our BUY recommendation is premised on the value that has emerged following the weakness in its share price. Valuation appears more appealing now that S P Setia is trading at 51% discount to its latest NTA per share of RM3.60. Meanwhile, its net dividend yield is estimated at 5.1%.

Source: MIDF Research - 15 Aug 2019