Maybank IB Research upgrades S P Setia to Buy

  • Analyst Reports
  • Monday, 14 Oct 2019

Setia City Residences is S P Setia’s high-rise development which embodies the essence of urban luxury with excellent facilities.

KUALA LUMPUR: Maybank Investment Bank Research has upgraded S P Setia Bhd from Hold to Buy with a revised target price of RM1.85 compared with RM1.32 previously.

It said on Monday S P Setia was confident of achieving its revised sales target of RM4.5bil for 2019 (excluding RM87mil land sales; 2018: RM4.6bil excluding land sales).

The target would be mainly driven by its affordable landed property projects in Malaysia (1H19 sales: RM1.98bil, 87% local/13% overseas).

To recap, management lowered its 2019 sales target by 20% in August 2019 on the back of lower new launches amid the challenging property market outlook across its various geographies.

“To reduce its inventory level (RM1.4b, -5.2% QoQ), management will now be more aggressive in pricing/marketing packages.

Maybank Research also said the management prefers to pare debt or fund future growth via non-core land sales/JV instead of an equity fund raising.

“We fine-tune our FY19-21E earnings estimates by +6% to -0.1% but lower TP to RM1.85 a share after imputing higher discount rates for S P Setia projects.

“S P Setia shares continued to sell off on the weak property market outlook and now offer compelling value, in our view. With sales risk more than priced in, market concerns of a no-deal Brexit easing and 41% upside to our revised TP, we upgrade S P Setia to Buy from Hold.

“S P Setia will only launch the new phases at Battersea Power Station when the Brexit uncertainties subside, while it intends to launch the Osaka project (RM1.9bil in GDV) post-Olympics 2020 in Tokyo.

“On landbanking, S P Setia is actively looking for new landbank in Sydney and Melbourne. To retain its financial flexibility while expanding its landbank, management will fund its future property developments via non-core land sales/JV (for new projects). Net gearing was 0.53x at end-June 2019, ” Maybank Research said.

Regarding the balance sheet, it said S P Setia's management prefers to pare debt or fund future growth via non-core land sales/JV instead of an equity fund raising.

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