SP Setia’s 4QFY14  (Oct)  results  were  within  our  estimate  but  below consensus. Maintain  BUY  and  a MYR4.08  TP  (25.9%  upside),  primarily underpinned  by  the  potential  M&A  angle.  FY14  new  sales  were  at MYR4.62bn, 7.6% below management’s  target  of  MYR5bn.  Going  into FY15,  the  company  aims  achieve  MYR4.6bn  in  sales  and  plans  to launch Eco Templer in Rawang and more phases of EcoHill Semenyih.

Within our expectations. SP Setia’s 4QFY14 results came in line with our estimate but below market expectations by 14%. FY14 headline net profit was lifted by a land disposal gain of MYR39m in 1Q, but this was offset  by  MYR47m  in  GST  financial  impact  and  MYR28m  long-term incentive plan (LTIP) expenses. A  5.7 sen single-tier final dividend was declared, bringing full year DPS to 9.7 sen, lower than last year’s 11 sen.

MYR922m new sales in 4QFY14. Total FY14 new sales of MYR4.62bn fell short of management’s target of MYR5bn. Out of the total, MYR1.8bn was secured from overseas projects in Melbourne and London, while the key  local  projects  that  contributed  to  the  sales  include  Setia  Alam  and EcoHill in the Klang Valley. Other notable trends include a sharp drop in sales  generated  from  Johor,  which  amounted  to  only  MYR500m  vs MYR1.6bn in FY13. There were also some minor withdrawals from some projects such as KL Eco City and Setia Business Park II in Iskandar, but the  amount  was  not massive. Going into  2015, management  has  set  a flat  sales  target  of  MYR4.6bn,  and  plans  to  roll  out  more  mid-range products given the challenging market conditions ahead. These include some  apartments  at  Setia  Alam  (GDV:  MYR250m),  terraces  and superlink homes in EcoHill (GDV: MYR250m), and the maiden launch of Eco Templer (GDV: MYR190m). Its key sales driver is still the Battersea project. Phase 3A, comprising 539 designer homes (GDV: MYR2.1bn by effective stake), has a achieved 50% take-up rate thus far.  

Forecasts. We cut our FY15/FY16 earnings forecasts by 10%/23%, as we  expect  the  long-term  incentive  plan  expenses  and  GST  financial impact to recur next year. Meanwhile, earnings from Fulton Lane and 18 Woodsville  (for  which  recognition  is  based  on  completion)  will  kick  in next  year,  as  the  projects  will  be  handed  over  progressively  in  FY15. Unbilled sales remained steady at MYR11.1bn.  

Maintain BUY. We maintain our BUY rating and MYR4.08 TP, based on a  10%  discount  to  RNAV.  Our  call  is  primarily  underpinned  by  the potential M&A angle as we think SP Setia’s major shareholder, PNB, will likely restructure its group of property companies next year.

Figure 2:  SP Setia’s 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.

Recommendation Chart

Source: RHB