KUALA LUMPUR: CIMB Equities Research expects SP Setia to be on track to achieve the FY18 sales target of RM5bil.
It said on Tuesday SP Setia achieved RM1.11bil in new property sales in 1QFY18, which was significantly higher vs. RM427mil in 1QFY17.
“This represents 22% of its FY18 sales target of RM5bil, signaling the group is on track to achieve its target and its strategy to roll out more mid-range landed properties is doing well,” said the research house.
Local projects contributed 58% of the total sales and international projects the remaining 42%. Total unbilled sales stood at RM7.95bil at end-Mar 2018, translating to 1.7 times FY17 revenue.
“We believe earnings will be volatile in FY18-20F due to the lumpy contributions 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 RM5bil, this will take time to flow down to its bottomline,” said the research house.
CIMB Research maintained its Hold call on SP Setia. It revised up its FY18-20F EPS by 10%-16% to reflect the recent proposed acquisition of the remaining 50% equity interest in Setia Federal Hill which it does not own in March 2018, and changes in its development timeline.
“However, we lower our target price to RM3.14, as we widen the RNAV discount to 35% from 30% previously due to the rising interest rate environment and muted sector outlook,” it said.
The research house said SP Setia’s 1QFY18 core earnings (excluding forex gain, gain on disposal and fair value gain on investment properties) came in within expectations, at 9% of its and 6% of Bloomberg consensus full-year forecasts.
“We deem the results in line as SP Setia’s earnings should improve in the coming quarters on stronger recognition of revenue from existing projects, as 1Q is typically a weaker period for local property market due to Chinese New Year and shorter month of February.
The 1QFY18 core net profit declined 61% on-year on lower revenue (-36% on-year) and higher interest expenses (+69% on-year).
The notable drop of revenue was due to marginal recognition from the Parque Melbourne project for the 1QFY18 vs. same period last year, while the higher interest cost was due to higher borrowings arising from the acquisition of I&P Group.
Quarter-on-quarter, core net earnings dropped 70% as 4Q17 was supported by the handover of the remaining two blocks of Battersea Power station Phase 1.
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