SP Setia’s 2QFY15 (Oct) results came in above our and market expectations, mainly due to the handover of its Tower 1 Fulton Lane. Maintain BUY, with a MYR4.08 TP (21% upside), as valuations will likely be supported by the potential M&A angle. As sales numbers were weakin both Malaysia and London, management has lowered its sales target to MYR4bn from MYR4.6bn for FY15.

• Above expectations. SP Setia’s 2QFY15 results beat our and market expectations. The strong results were mainly due to the handover of its Tower 1 Fulton Lane project in Melbourne. The bumper earnings havealso offset MYR11m in expenses on a long-term incentive plan (LTIP) and the MYR8m goods and services tax (GST) financial impact. A 4-sen single-tier dividend was declared.
• Sales target drops to MYR4bn. New property sales in 2QFY15 were atMYR774m vs MYR1bn sales in 1QFY15 (MYR1.97bn, up to May 2015).Overseas sales made up 48% of the total. Since its launch in Oct 2014, the take-up rate for Phase 3A Battersea Power Station (BPS) project was only about 50% - partly due to the cautious sentiment ahead of theUK election last month, as well as the steeper pricing of GBP1,700 psf. Given the recent MYR depreciation, the bulk of the target buyers may be Londoners. Locally, sales numbers were still quite weak. Its Klang Valleysales were down by half YoY. Apart from Setia Alam, sales of other projects including EcoHill have declined. As for the Johor region, total sales fell by 67% YoY. Given the challenging market conditions, management has revised its FY15 sales target to MYR4bn (from MYR4.6bn).
• Forecasts. In line with management’s guidance on its project completion timeline, we raise our FY15/FY16/FY17 earnings forecasts by 57/10/41%. Tower 2 Fulton Lane, worth AUD280m, will be handed over in Aug/Sept, while Phase 1 of the BPS project (GBP336m by effective stake) may complete in 1QFY17. Unbilled sales stayed resilient at MYR11bn vs MYR11.5bn in 1QFY15.
• Maintain BUY. While the potential M&A/restructuring plan may be delayed in view of the weak sentiment in equity and property markets, we believe it is still a possible re-rating catalyst for the stock. We maintain our BUY rating and MYR4.08 TP, which is at a 10% discount to RNAV. Note that SP Setia is changing its FYE to Dec from FY15 onwards.