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CIMB Research sees SP Setia purchase of I&P as long-term positive


CIMB Research believes SP Setia should be able to achieve its FY18 new sales target of RM5bn but this will take time to contribute to its bottomline

CIMB Research believes SP Setia should be able to achieve its FY18 new sales target of RM5bn but this will take time to contribute to its bottomline

KUALA LUMPUR: CIMB Equities Research views SP Setia’s acquisition of I&P as an overall long-term positive as the deal bumped up its land bank to 9,606 acres as at end-Dec 2017 from 5,218 acres at end-Dec 2016. 

It said on Wednesday the group will not be actively sourcing for additional land bank at this juncture and will continue to focus on extracting and enhancing the value of its existing land bank.  

“We believe earnings will be volatile in FY18-20F due to the lumpy contribution from the Battersea project in London, UK. 

“We forecast SP Setia’s core net profit to be lower on-year in FY18F, as the ramp up in launches and higher sales target might not be able to mitigate the lower on-year contribution from joint ventures as Battersea phase 1 was completed in Oct 2017. 

“While we believe SP Setia should be able to achieve its FY18 new sales target of RM5bn, this will take time to contribute to its bottomline,” it said. 

CIMB Research maintained its Hold call for the company as it cut its  FY18-19F EPS by 2%-25% to reflect changes in its development timeline and project launch assumptions. 

The research house retained its target price of RM3.40, based on a 30% discount to realised net asset value. 

SP Setia remains a Hold with stronger-than-expected sales as a key upside risk while high integration cost is a key downside risk, it said.

CIMB Research noted that SP Setia’s FY17 core net profit was below expectations, at 93% of its and 85% of Bloomberg consensus full-year forecasts. 

“FY17 core net profit (excluding forex movement and I&P’s full-year contribution) declined 16% on-year to RM639m as revenue came in 26% lower on-year, mitigating the stronger profit recognition of RM177m (vs. RM100m in FY16) from its Battersea Phase 1 project in London, UK. 

“A final DPS of 11.5 sen was declared, bringing FY17 DPS to 15.5 sen, a decent dividend yield of 4.7%,” it said. 

SP Setia achieved RM4.1bn sales in FY17, which surpassed its target of RM4bn. Local projects contributed 63% of the total sales and international projects the remaining 37%. Total unbilled sales stood at RM7.7bn at end-Dec 2017, translating to 1.7x FY17 revenue. 

As SP Setia has completed the acquisition of I&P Group on Dec 1, 2017, its enlarged total sales were RM4.92bn, of which RM859m of sales were from I&P Group. 

SP Setia plans to launch projects up to RM7.1bn gross development value (GDV) in FY18 -- RM4.3bn will be local launches and RM2.7bn from international projects. 

Notable launches are in Setia Alam, Salak Tinggi, Alam Impian, Temasya Glenmarie, Alam Sari, Setia Eco Glades, Setia Eco Park, Temasya Putra, Setia Ecohill, and Kota Bayuemas. 

“The group has set a higher sales target of RM5bn for FY18 (FY17 target: RM4bn), of which it expects c.80% to come from local projects,” said CIMB Research.   
 

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