KEY INVESTMENT HIGHLIGHTS

• 9MFY24 earnings below our expectation
• High base earnings in 2QFY24
• 9MFY24 new sales at RM3.2b
• Earnings forecast revised downwards
• Maintain BUY with a revised TP of RM1.67

9MFY24 earnings below our expectation. S P Setia Berhad 9MFY24 core net earnings of RM395.8 came below our expectation but within consensus estimates, making up 62% and 72% of our and consensus full year estimates respectively. The negative deviation could be attributed to the slower than expected progress billing and higher tax rate in 3QFY24.

High base earnings in 2QFY24. Sequentially, 3QFY24 core net income eased to RM84m (-65%qoq) due to high base in 2QFY24 which were boosted by land sales gain from Taman Pelangi Indah land. The lower earnings were also attributed to lower progress billing. Besides, earnings were dragged by higher tax rate of 44% in 3QFY24 from 33% in 2QFY24.

On yearly basis, 2QFY24 core net income was higher (+96%yoy), bringing 9MFY24 core net earnings higher at RM395.8m (+19.6%yoy).

The higher earnings were mainly contributed by land sales gain of RM634m which offset the weaker contribution from Melbourne projects and losses from Battersea Power Station. Meanwhile, revenue recognition of S P Setia was mainly from its townships projects in Malaysia which driven by resilient demand for landed properties.

9MFY24 new sales at RM3.2b. S P Setia registered total new sales of RM900m in 3QFY24, bringing total new sales to RM3.2b in 9MFY24 which included land sales. New property sales in 3QFY24 stood at RM556m, contributed by sales of property development of RM477m and industrial products at RM79m. Meanwhile, S P Setia inked another land disposal in Bukit Raja for RM229m in 3QFY24. Overall, new sales of RM3.2b in 9MFY24 is on track to meet management new sales target of RM4.4b Looking ahead, new sales momentum should sustain by launches of projects with total GDV of RM1.97b for the remaining of the year.

Meanwhile, Setia Federal Hill Phase 1 project (GDV: RM1.4b) is previewed in November and will be officially launched in early 2025 and that will support new sales growth. On the other hand, unbilled sales declined to RM3.5b in 3QFY24 from RM4.16b in 2QFY24, providing less than one year earnings visibility.

Maintain BUY with a revised TP of RM1.67. We revise our earnings forecast for FY24F/25F/26F by -21%/-3.6%/-1.3% to factor in lower progress billing. Our TP for S P Setia is revised to RM1.67 from RM1.72 as we update share base in our RNAV valuation. Our TP is based on 60% discount to RNAV. New sales outlook for S P Setia is expected to remain stable, supported by launch of its township projects. Meanwhile, valuation of S P Setia remains attractive, trading at 54% discount to latest NTA per share of RM3.00. Hence, we maintain our BUY call on S P Setia.

Source: MIDF Research - 26 Nov 2024