SP Setia’s 1QFY14  earnings  came  in  below  expectations.  Four  months into FY14, the company has achieved new sales of MYR1.83bn. Hence, the  annualised  sales  will  be  lower  than  last year’s record MYR8.2bn. Although value is emerging, CEO Tan Sri Liew’s departure will remain a key overhang on the stock. As such, we maintain  our NEUTRAL rating and MYR3.54 FV.

Below  expectations.  SP Setia’s 1QFY14  results  were  below  our  and market  expectations  on  an  annualised  basis.  The group’s headline  net profit  was  boosted  by  a  one-off  gain  amounting  to  MYR39m  from  the disposal of a parcel of land to Setia City Mall JV Co. This offset the long-term incentive plan (LTIP) expenses incurred during the quarter.

Sets  new  MYR5bn  sales  target.  The  management  has  just  come  out with  a  new  sales  target  of  MYR5bn.  Four  months  into  FY14,  SP  Setia has  chalked  up  MYR1.83bn  in  new property sales, short of last year’s record MYR8.2bn on an annualised basis. During this period, sales were more  encouraging  in  the  Klang  Valley,  especially  for  new  projects  such as  Setia  EcoHill  in  Semenyih,  where  the  bungalow  land  plots,  linked houses, clustered  homes  and  semi-ds  were  almost  fully  sold.  However, property  sales  were  down  by  more  than  50%  in  the  southern/Johor region,  reflecting  the  weak  demand there following  the introduction  of a series  of  cooling  measures.  Meanwhile,  the group’s overseas  projects contributed about 20% of total sales.

Projects  in  the  pipeline.  While  we  believe  SP  Setia  will  continue  to focus  on  the  bread-and-butter  projects  within  the  Klang  Valley,  we expect  higher  contributions  from  the  overseas  markets. While  inventory sales will flow through from last year, Phase 2 of the Battersea project is slated to be launched in May this year.  

Forecasts. We make no changes to our earnings forecasts, as earnings are typically stronger in 2H of the financial year. Unbilled sales remained strong at MYR10.7bn (MYR6.4bn excluding overseas projects).

Maintain NEUTRAL. Note that SP Setia CEO Tan Sri Liew will leave the company on 30 April, while CFO Dato’ Teow Leong Seng will leave after July this year. Although value is emerging, the departure of these crucial management personnel will remain a key overhang on the stock. Hence, we  maintain  our  NEUTRAL  rating  and  MYR3.54  FV,  based  on  a  20% discount to RNAV.

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

SP Setia has been the property sector bellwether over the years. The company has a large presence in many key areas in Malaysia. Last year, it ventured into London via a joint MYR40bn project with the Employees Provident Fund and Sime Darby Berhad.

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Source: RHB