• Maintain BUY and MYR1.72 TP, 24% upside. 9M24 earnings beat our expectations, but was in line with consensus, as SP Setia’s land monetisation strategy lifted earnings, and helped to improve net gearing to 0.38x from 0.5x in FY23. Earnings was also supported by narrower JV losses associated with the Battersea Power Station JV. Including land sales, the group should be on track to meet its MYR4.4bn sales target, with it planning to launch another MYR1.97bn worth of projects by year end.

• 3Q24 results. Revenue was lower QoQ mainly due to the material land sale in Taman Pelangi Indah 2 in the previous quarter (PAT gain of MYR333m), which resulted in a more normalised EBIT margin of 26.9% in the quarter (2Q24: 39.9%). Earnings during the quarter were largely driven by the recognition of the land sale in Setia City, with a PAT gain of MYR143m. This is about 70% of the quarter’s PBT of MYR205.3m. JV losses narrowed to MYR56m in the quarter (2Q24: MYR101m), due to additional development and infrastructure costs incurred earlier for a completed phase in the Battersea Power Station project. Meanwhile, unsold inventory fell to MYR1.39bn from MYR1.77bn in FY23.

• On track to meet its sales target. The group achieved total sales of MYR3.2bn for 9M24 (of which MYR731m were land sales), with a roughly equal split of MYR1.58bn sales in the southern region, and MYR1.37bn in the central region (and 6% of sales coming internationally). Note, the sale of several industrial land plots in Setia Alaman contributed MYR368m in sales for 9M24. We think the group is on track to achieve its MYR4.4bn sales target given an estimated MYR1.97bn worth of new projects to be launched for the remainder of the year.

• Outlook. We expect to see another land sale recognition in 4Q24 from Taman Pelangi (estimated PAT: MYR57m). Beyond that, we think earnings moving forward will be more normalised, driven by its township development and industrial expansion. The group is confident in the Australian market, recently launching ATLAS Melbourne, with an estimated GDV of MYR2.7bn. The 73-storey mixed development in Melbourne’s central business district will be completed in stages, with the Phase 1 construction slated to start in 1H26 and complete by 2028. The group has also rolled out exclusive previews of Setia Federal Hill, with Phase 1 of this new project (MYR1.4bn GDV) slated to be launched in early 2025.

• We raise FY24F earnings by 8% to reflect the land disposal gains. Unbilled sales stood at MYR3.5bn vs MYR4.16bn as at 2Q24. Our TP is based on a 45% discount to RNAV and includes a 0% ESG premium/discount. Downside risks: Weaker-than-expected property sales, margins and market conditions.

Source: RHB Securities Research - 26 Nov 2024