S P Setia set to achieve higher earnings this year

PETALING JAYA: S P Setia Bhd is set to achieve strong earnings this year despite the challenging market conditions.

The company, which has set a bullish sales target of RM4.55bil for this year, will be focusing on landed residential projects to grow its earnings, said Macquarie Research in a report.

“Of the total, RM2.8bil (64%) will consist of landed, residential property with pricing points of less than RM1mil per unit, ” the reasearch house said.

TA Securities said overall demand for the group’s landed properties remain resilient, with maiden launches in Setia Safiro Cyberjaya and Setia Mayuri Semenyih fully taken up.

“Meanwhile, we understand that the single-storey terrace houses at Setia Fontaines in Seberang Prai (priced from RM364,000) achieved commendable take-up rates of 90%. Unbilled sales as at December 2019 stood at RM10.7bil, providing around two years of earnings visibility.”

Credit Suisse said it expects SP Setia’s 2020 profit to improve 11% year-on-year, on the back of more advanced progress billings and also ongoing efforts to monetise unsold inventories.

“The earnings jump will be driven by the completion of three overseas projects, namely Battersea Phase 2 and Phase 3A, Sapphire by the Gardens and UNO Melbourne.”

The research house is maintaining an ‘outperform’ call with a target price of RM1.70.

“The latest unbilled sales of RM10.7bil are 2.9-times its 2019 property development revenue, while the group is backed by 8,857 acres of remaining landbank with a potential gross development value of RM142bil.”

MIDF Research meanwhile is maining a ‘buy’call on the stock with an unchanged target price of RM1.86.

“We maintain our earnings forecast for 2020 and introduce earnings forecast for 2021. Our target price is based on 58% discount to realised net asset value. We maintain a buy call on SP Setia as its valuation is attractive.”

Credit Suisse meanwhile said further monetary easing will be supportive of the property market.

“The recent overnight policy rate cut has yet to trickle down to a pick-up in property demand. In our view, this was likely clouded by political uncertainties as well as the outbreak of Covid-19 which has had a negative impact on sentiment.

“Should these uncertainties persist, we believe there will likely be further monetary easing and this could provide the much-needed boost to the domestic property sector.

Property stocks did well during SARS on the back of lower interest rates. Based on NAPIC statistics, the number of property transactions grew 5% in 2003 and a further 20% in 2004.”

In spite of the challenging economic climate, SP Setia Bhd achieved total sales of RM4.56bil, to meet its RM4.55bil sales target for 2019.

This was in spite of global geopolitical issues such as the US-China trade tensions, unrest in Hong Kong as well as tight lending criteria in Malaysia.

For the year ended Dec 31,2019, the group’s revenue and profit before tax came in at RM3.93bil and RM598mil, respectively.

Local projects are the biggest contributor to sales, bringing in RM4.01bil or about 88% of sales, while the remaining 12% is fulfilled by international projects such as UNO Melbourne in Australia, Daintree Residence in Singapore and EcoXuan in Vietnam, according to the company.

On the local front, sales were largely from the central region with RM2.78bil, aided by a RM747mil contribution from the southern region and RM480mil from the northern region.

For the final quarter of 2019, the group witnessed its strongest period, with a RM1.49bil spike in sales.

It said this was attributed to eleventh-hour purchases by home buyers to take opportunity of the incentives of the Home Ownership Campaign (HOC).

A total of RM675mil in sales from the HOC were secured during the fourth quarter.

For the full-year, total sales brought in by the HOC amounted to RM1.82bil.

SP Setia said its efforts to clear inventories had also contributed an additional RM637mil.

MIDF Research said the company’s earnings were within expectations.

SP Setia’s 2019 core net income of RM306.8mil came in within expectations, meeting 101% and 97% of our and consensus full year estimates respectively.

“Note that we have excluded mainly disposal gains on former British Embassy Land and foreign exchange losses in our core net income calculations.”

UBS meanwhile said SP Setia’s core profit after tax and minority interests (Patmi) was in line with its estimates.

“We expect launches in the first quarter to be slow before management starts ramping up again in the second quarter. "

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