Review

• SP Setia’s 9M19 core net profit of RM300.5mn came in broadly in line with ours but above consensus earnings estimates. 9MFY19 results which grew 33% YoY, accounted for 78% and 90% of ours and consensus’ fullyear forecasts respectively.

• 9M19 revenue grew 22% YoY, largely due to sale of former British Embassy Land located in Jalan Ampang for a sale consideration of RM449.2mn. Nevertheless, EBIT margin contracted 3.4%-pts YoY to 22.0%, due to: 1) aggressive efforts to clear unsold stock with attractive incentive scheme, and 2) sale of embassy land recorded low gross profit margin of 8%.

• Sequentially, SP Setia’s 3Q19 net profit of RM108.9mn is lower than the net profit of 2Q19 of RM138.7mn, mainly due to RM35.8mn gain from the sale of former British Embassy Land recognised in 2Q19.

• SP Setia’s 9M19 property sales eased 4.1% YoY to RM3.07bn, largely due to lower contribution from overseas projects. Stripping out overseas contribution, the group’s domestic sales grew 13% YoY in 9M19. With that, local sales contributed 85% of the total sales while international projects only made up the 15% of total sales. Note that, the group recorded RM734mn sales from the Home Ownership Campaign (HOC), accounting for 45% of the local sales in 9M19.

• Overall, demand for landed property remains resilient, the recent launches in Setia Safiro Cyberjaya and Setia Mayuri Semenyih were fully taken up. Meanwhile, we understand that the single-storey terrace houses at Setia Fontaines mainland Penang (priced from RM330k) achieved commendable take-up rates of 80%. Unbilled sales as at Sep-19 stood at RM10.5bn, providing c. 2 years earnings visibility.

Impact

• Maintain our earnings forecasts.

Outlook

• Management has maintained its FY19 sales target of RM4.55bn, underpinned by total launches of RM4.88bn. Looking ahead, the group has lined up another RM2.17bn worth of GDV to be launched in 4Q19. Moving into the final quarter of 2019, the group will continue to focus on the launches of mid-range landed properties in the established township of Klang Valley and Johor Bahru. Key projects scheduled for launch in 4Q19 are Setia Alam, Setia Eco Hill, Setia Eco Templer, Setia Eco Park, Bandar Kindara, Alam Impian, Setia Eco Garden and Setia Tropika. In addition, SP Setia is also expected to unveil its maiden phase of its new township in Bandar Baru Salak Tinggi, namely Setia Warisan Tropika, (GDV RM140mn, 2-storey linked houses, priced from RM650k) in mid/end Nov-19.

• While 9M19 sales only accounted for 67% and 69% of management FY19 sales target and our full-year sales assumptions, we believe the group is on track to achieve it, underpinned by the wide range of planned launches, the encouraging response to the HOC and initiatives introduced to promote homeownership.

Valuation

• We maintain SP Setia’s target price at RM1.89, based on an unchanged target average blended CY20 PE/PB of 13x/1.0x. We continue to like SP Setia for its dominant presence in local property market. As an established township developer, we believe the group has the flexibility in product offering and pricing for their new launches, thanks to their relatively low land cost. Maintain Buy.

Source: TA Research - 14 Nov 2019