Investment Highlights

• We maintain BUY on S P Setia (Setia) with an unchanged value (FV) of RM1.84/share based on a discount of 40% to RNAV and neutral ESG rating of 3 stars . Ou also implies FY25F PE of 25x, on par with Setia’s 1- year trai PE.

• Setia’s 1HFY24 core net profit (CNP) of RM382mil came in wi our expectation but above consensus’. Excluding lumpy n core gains of RM70mil mainly from the sale of 50% stak Retro Highlands to MMC, 1HFY24 core net profit accounted 46% of our FY24F net profit and 58% of street’s.

• YoY, Setia’s 1HFY24 revenue expanded 56% to RM3bil w CNP surged 3.5x, mainly boosted by land sale gains RM371mil. The revenue contribution from land sales in 1HF was RM731bil vs. RM504mil in 1HFY23.

• In 2QFY23, Setia registered new development sales RM883mil (+28% QoQ), driving 1HFY24 new sales to RM2 (+37% YoY) and attain 52% of its FY24F sales target of RM4. The new 1HFY24 sales include proceeds from Johor-ba projects in Taman Pelangi (RM167mil) and Taman Pelangi In 2 (RM564mil).

• QoQ, Setia’s 2QFY24 CNP escalated 4.2x despite a mild growth in revenue. This was primarily due to the higher p margin from the recognition of land sales in 2QFY24 1QFY24, driven largely by Taman Pelangi Indah 2. Howe unbilled sales fell 23% QoQ to RM4.2bil due to delayed tim of some project launches.

• Local projects remain the main contributor, making up 97% 1HFY24 new sales. Excluding land sales, the central reg (mainly Setia Alaman Industrial Park) accounted for 60% development sales followed by the southern region at 35%, northern region at 1% and international at 3%.

• The 40%-owned Battersea Power Station in London registe a loss of RM100mil in 2QFY24, up from RM90mil in 1QFY24 additional impairments for an income guarantee of unoccupied office tower.

• For FY24F, the group’s earnings will continue to be larg driven by land sales of which RM396mil is expected to recognised in 2H2024. 58% of the 2HFY24 land sales stems f Setia City in Shah Alam and 42% in Taman Pelangi, Jo These are expected to generate net profit of RM198mil – 29% our FY24F CNP.

• With a huge land bank of 5,261 acres carrying a remaining G of RM107bil , we expect more land sales this y including a 307-acre Tanjung Kupang land in Johor which co be developed for a data centre with a joint-venture partner.

• The stock currently trades at an attractive FY25F PE of 18x its 4-year peak of 25x.

Source: AmInvest Research - 15 Aug 2024