SP Setia financial position poised to improve in 2H

KUALA LUMPUR: RHB Research has upgraded S P Setia Bhd to a “buy” recommendation with a higher target price (TP) of RM1.48 from RM1.28, driven by better prospects of the company’s financial position.

In a research note, RHB Research said S P Setia’s financial position should improve gradually from the second half, with degearing being the property developer’s top priority.

“We believe the handover of a few projects in Melbourne and Singapore as well as the potential completion of some land disposals will help reduce its net gearing to 0.51 times-0.53 times by year-end from the current 0.61 times, including non-controlling interests.

“Our new TP is now based on a 65% discount to revalued net asset value from 70% previously with a 2% environmental, social and governance premium,” it pointed out.RHB Research said the completion of SP Setia’s overseas projects such as Sapphire and UNO in Melbourne in the third quarter of 2022 (3Q22) as well as Daintree Residence in Singapore in 4Q22 should pare down RM1.5bil to RM1.6bil in debt from the company’s total borrowings of RM12.6bil.

“Also earnings are expected to be more lumpy in the second half this year,” the research house added.

It said the property developer is also looking to replenish its landbank in Melbourne given that the existing projects there will be completed this year.

“We are not concerned over the potential funding as the accumulated profits generated in all S P Setia’s past projects in Melbourne should help to finance the new land,” said RHB Research.

The research house said SP Setia’s slower sales in 1Q22 is generally within expectation and believe the company’s sales target of RM4bil for this year remained on track on the back of RM4.25bil new launches, of which 65% are landed properties. — Bernama