KUALA LUMPUR: CIMB Equities Research sees stronger earnings for SP Setia in the second half of 2017, underpinned by improving domestic sales and better margins as it maps out its strategy to meet the RM4bil full-year sales target.
It said on Friday SP Setia’s annualised 1H17 core net profit made up 75% of its and 70% of Bloomberg consensus full-year forecasts.
“The results were broadly in line as we expect a stronger 2H17 on the back of improving domestic sales and better margins (FY17F EBITDA margin: 23% vs. 1H17’s: 19%),” it said.
SP Setia’s revenue fell 10% on-year in 1H17 due to timing of billings but should pick up in the next two quarters, driven by RM8bil unbilled sales.
However, the company achieved RM2.1bil sales in 1H17 (1H16: RM1.1bil), which accounted for 50% of its total full-year target sales of RM4bil.
Its overseas projects were the star performer in 1H17, accounting for over 30% of total 1H17 sales. This was entirely contributed by Sapphire by the Gardens luxury residential apartments in Melbourne CBD (RM1.3bil GDV).
CIMB Research said 70% of the units were sold within one week from the project's June 17 launch, with take-up rate to date creeping up to 74%.
Strategies to meet RM4bn full-year sales target
During the results briefing, management reiterated its FY17 sales target of RM4bil. Its focus now shifts to domestic products in 2H17 with a total launch GDV of RM2.9bil.
“Properties slated for launches in 2H17 are located in mature and highly accessible townships, underpinning Setia’s confidence of achieving good take-up rates.
These townships include the group’s flagship Setia Alam, Setia EcoHill, and Setia Eco Park. Over 50% of the RM2.9bil launch GDV are landed units.
“We see the I&P acquisition as an overall long-term positive as it would make Setia Malaysia's 3rd largest developer by land bank size.
“However, the medium-term concern is potential dilution to earnings arising from the up to RM1.2bil rights issue (ordinary and preference shares) and RM1.2bil share placement,” the research house said.
CIMB Research said that in its previous report on the I&P acquisition, it highlighted potential downside risk of up to 33% to FY18F EPS, including the estimated dilutive impact from the enlarged share base.
“We maintain our FY17-19 EPS forecasts but lower our target price by 7% as we impute the I&P deal, share placement proceeds, and new shares from the share placement and rights issue into our fully diluted realised net asset value.
“We also peg a higher 30% RNAV discount (20% before) in view of the likely sustained overhang on the share price pending the completion of all corporate actions.
“Maintain Hold; upside to our call is stronger-than-expected 2H17 sales while weaker sales are a key downside risk,” it said.
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