SP Setia recorded 1QFY22 net profit of RM67.5m (-10.3% YoY, -45.3% QoQ) which constituted just 16% and 19% of our and consensus full year estimates. We deem it as in line as we expect revenue to gain speed in the coming quarters, also supported by its overseas projects. During the quarter, the Group secured sales of RM679m, with 92% from local projects and 8% from overseas. The Group also cleared inventories worth RM159m during this period. Albeit the weaker sales (only 17% of FY22 sales target of RM4bn), we understand the Group is still confident that sales will gain pace with current bookings also high at RM655m, with management focusing on converting these into sales. No change to our earnings estimates for now. With current price weakness and its deep intrinsic value, we upgrade SP Setia from Neutral to Outperform with unchanged TP of RM1.40 (pegged at c.70% discount to RNAV). Going forward, the Group is expected to meet its FY22 sales target underpinned by c.RM4.0bn worth of launches in the pipeline. Focus remains on landed residential projects, mostly from its existing townships.

• 1QFY22 property revenue down 17% YoY to RM822.1m as Group pretax profit (PBT) also eased 19% YoY to RM121.4m correspondingly, mainly due to lower revenue contribution from both Malaysia and Singapore. We understand that there was higher volume of development phases which were completed and handed over in 1QFY21, resulting in higher revenue contribution last year. The Group secured sales of RM679m mainly derived from the Central region (RM420m), while the Southern region contributed RM140m as another RM70m was from the Northern region. The Group sold RM159m worth of completed inventories during 1QFY22 as compared to RM206m in 1QFY21.

• Sales expected to gather pace in coming quarters. To recap, the Group has set a higher FY22 sales target of RM4.0bn, or about 5% higher than the original FY21 sales target of RM3.8bn. Pipeline launches of c.RM4.0bn will again focus primarily on landed residential projects in Setia Alam, Setia Eco Glades, Setia Safiro, Setia Alam Impian, Bandar Kinrara, Setia Bayuemas, Setia Ecohill & Ecohill 2, Setia Eco Park and Setia Warisan Tropika in the Central region; Setia Indah, Taman Rinting and Taman Pelangi Indah in the Southern region and Setia Fontaines in the Northern region. As of 31 December 2021, the Group has 48 ongoing projects, with effective remaining land bank of 7,237 acres valued at a GDV of RM122.4bn, which we believe will last the Group more than 20 years based on current launch rate. Unbilled sales remained healthy at RM9.84bn (from RM10.2bn in 4QFY21).

Source: PublicInvest Research - 24 May 2022