KEY INVESTMENT HIGHLIGHTS

• Virtual meeting with S P Setia
• On track to meet new sales target of RM3.8b
• Focusing on existing projects
• Better earnings outlook for FY21
• Earnings forecast maintained
• Maintain BUY with a revised TP of RM1.24

Virtual meeting with S P Setia. We had a virtual meeting with S P Setia and came out feeling reaffirmed on positive prospect of its property division. Key takeaways from the meeting as below:

On track to meet new sales target of RM3.8b. Management is confident that S P Setia will be able to hit its new sales target of RM3.8b for FY20. Note that S P Setia recorded new sales of RM2.86b as of October 2020 and is confident that sales will be able to meet new sales target of RM3.8b for FY20 as new sales are expected to be strong in 4Q20. Property sales in 4QFY20 is expected to be supported by pent up demand post MCO and low interest rate. We gather that sales from its matured townships such as Setia Alam and Bandar Kinrara remain encouraging as new launches in the townships enjoyed good take up rate of >90%.

Focusing on existing projects. S P Setia’s plan in FY21 will remain focusing on its existing projects in Malaysia especially its matured townships namely Setia Alam, Bandar Kinrara and Alam Impian as S P Setia does not have plan for land banking in Malaysia in the near term. Nevertheless, we understand that S P Setia may explore possibility to dispose its non-strategic landbank in Malaysia. Meanwhile, S P Setia is looking to expand overseas operations by considering to replenish its landbank in Melbourne or Sydney, Australia.

Better earnings outlook for FY21. We expect earnings of S P Setia to improve in FY21 mainly due to earnings recovery from adverse impact of delayed construction progress during MCO. Besides, we expect profit margin to normalize in FY21 as higher cost of sales has dragged earnings in 9MFY20 due to higher sales of product mix with lower margin. Meanwhile, we think earnings in FY21 are unlikely to be marred by impairment as S P Setia has done kitchen-sinking in FY20. Note that S P Setia accounted impairment provision for Battersea Power Station and completed inventories mainly Setia Sky 88 project in Johor Baru in 9MFY20.

Maintain BUY with a revised TP of RM1.24. Post meeting, we make no changes to our earnings forecast. Meanwhile, we revise our TP for S P Setia to RM1.24 from RM0.84 as we narrow our RNAV discount to -72% from -81% as we see stable prospect for its new property sales and better earnings outlook for FY21. Valuation of S P Setia is attractive, trading at steep discount of -69% to its NTA per share of RM3.41. Hence, we maintain our Buy call on S P Setia.

Source: MIDF Research - 17 Dec 2020