S P Setia poised for record-breaking earnings

PETALING JAYA: S P Setia Bhd’s robust land sales and promising market conditions have positioned the property giant for potentially record-breaking earnings in its fiscal year ending Dec 31, 2024 (FY24).

For the first quarter ended March 31, 2024 (1Q24), S P Setia recorded new sales of RM1.42bil, making up 32.3% of its FY24 sales target of RM4.4bil.

A significant portion of these new sales comes from land sales, which totalled RM731mil and accounted for 48.5% of 1Q24 sales.

The group announced that it secured two major land sales in Johor during 1Q24, namely Taman Pelangi Indah 2, with sales proceeds of RM564mil and an estimated net gain of RM333mil, and Taman Pelangi, with sales proceeds of RM167mil and an estimated net gain of RM47mil.

In addition to these, Hong Leong Investment Bank (HLIB) Research said there are three more land sales yet to be recognised, including Alam Impian with estimated sales proceeds of RM26mil, Bandar Setia Alam with sales proceeds of RM229mil, and Setia Federal Hill with sales proceeds of RM103mil.

Assuming all these land sales are successfully completed and recognised in FY24, HLIB Research estimates the total net gain from land sales to be around RM530mil.

“The group should see bumper earnings for FY24 due to the expected substantial land sale gains as highlighted above,” HLIB Research said.

Meanwhile, TA Research expects continued momentum in property counters’ share prices driven by robust demand, favourable market conditions, and positive investor sentiment.

“Specifically for S P Setia, we are optimistic about the group’s compelling turnaround plans and improving financial position,” it said. It believes that S P Setia is on track to achieve its sales target of RM4.4bil in FY24.

This is given that its year-to-date sales accounted for 32% of the target, coupled with the RM4.5bil worth of new launches in Malaysia expected to be rolled out in the coming quarters.“In FY24, the group will prioritise accelerating township and large-scale industrial developments, along with further strengthening its global footprint,” it added.

According to TA Research, S P Setia is set to commence the first phase of Setia Federal Hill, a development in Bangsar with a total gross development value of RM20.2bil, to be launched in the second half of this year.

Elsewhere, it said S P Setia is preparing to launch its first industrial development, Setia Alaman (399 acres), in the Klang Valley this year.

Beyond Setia Alaman, the research outfit said S P Setia has also allocated 323 acres in Setia Fontaines, Penang, and 307 acres in Tanjung Kupang, Johor, for industrial park development.

TA Research highlighted that through de-gearing strategies like repatriating funds from overseas projects, monetising non-strategic land, and clearing unsold inventory, S P Setia successfully decreased its net gearing to 0.45 times in March 2024 from 0.49 times in December 2023.

The property developer aims to further reduce net gearing to 0.4 times by year-end through the utilisation of proceeds from land sales.

Additionally, TA Research said the group is in the preliminary stage of exploring the potential of listing some of its investment properties as a real estate investment trust to further lighten its balance sheet.

Similarly, HLIB Research expects further reduction in net gearing arising from the land sales. “The improving property market has facilitated the group’s ability to monetise and activate its assets as evident from its recent land sales with some secured at attractive margins,” it said.

The research house believes the strengthened balance sheet will position the group better to accelerate its project launches.

To account for the land sales contribution, HLIB Research has revised its earnings forecast up by 111.3% for FY24.

The research house, which maintained a “buy” call on the stock, raised its target price (TP) to RM2 per share from RM1.07 previously.

Similarly, TA Research adjusted its earnings forecast for FY24 to RM542mil from RM264mil previously.

“We anticipate that the majority of the land sales proceeds will be allocated towards debt reduction, resulting in lower finance costs in FY25 and FY26,” it said.

In light of the promising outlook, TA Research has maintained a “buy” rating on the stock with a higher TP of RM1.85 per share.

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