S P Setia on track to meet FY22 sales target

Scientex payments likely to boost earnings

“The group remains committed to completing the Battersea Power Station by 2022 and the two Australian projects by 2022/23.”

TA Research

PETALING JAYA: Despite a decrease in property sales in the first quarter of 2022 (1Q22), S P Setia Bhd’s financial year 2022 (FY22) target of Rm4bil remains intact, says TA Research.

While the property group’s management acknowledged that the market was disappointed over S P Setia’s dismal 1Q sales, it said sales momentum had picked up in 2Q22, driven by bookings conversion and encouraging take up for new launches.

“Therefore, management believes the group is on track to meet its FY22 sales target. The group has lined-up Rm3.1 bil worth of new launches in Malaysia for 2Q22 to 4Q22,” TA Research said in a report, following a recent conference call with S P Setia’s management.

In addition, the research firm anticipates that S P Setia’s new launches in Vietnam would considerably contribute to the group’s sales in FY22.

For 1Q22, S P Setia’s property sales decreased by 43% year-on-year and 22% quarter-on-quarter to Rm679 mil, accounting for 17% of the group’s full-year sales target of Rm4bil, said TA Research.

Another key takeaway from the meeting was that its projects in the United Kingdom and Australia are on track for completion, said TA Research.

“S P Setia remains committed to completing Battersea Power Station (BPS) 3A by 2022 and the two Australian projects, Sapphire by the Gardens Melbourne and UNO Melbourne, by 2022/23.

Management stated that marketing the remaining BPS Phase 2 and Phase 3A units remained a priority.

Future phases of the BPS are now under evaluation, under the guidance of a flexible planning and development strategy,” said TA Research.

In Melbourne, it added that the group seeks to buy more land as the current projects will be completed next year.

However, its management acknowledged that acute labour shortages and aggressive interest rate hikes may hamper sector recovery. Even so, S P Setia intends to defend its gross profit margin at 25% versus the pre-pandemic average of 30%.

On concerns of the rising interest rates, TA Research noted that S P Setia continues to be cautious with new launches, focusing on mid-range landed apartments in established townships to meet owner-occupier demand.

“Besides, the group has identified various de-gearing initiatives to cope with the increased financial commitments caused by the increase in overnight policy rate,” it added.

According to the research firm, management emphasised that the group’s priority in 2022 will be to pare down borrowings, while simultaneously strengthening the group’s capital structure.

“Management anticipates a reduction in gearing upon cash repatriation from overseas projects, monetisation of non-strategic landbank and clearing unsold inventories.

In particular, S P Setia is expected to see strong earnings this year due to the progressive handover of its two projects in Australia (unbilled sales Rm2.3 bil),” added TA Research.

S P Setia’s earnings in 2022 to 2024 would also be boosted by a staggered payment from Scientex Bhd for the sale of its parcels of land in Johor for Rm518 mil. This will be paid in three installments.

TA Research said it was cutting its FY22 sales assumptions to Rm4bil from Rm4.2 bil previously and revised its progress billings and margin assumptions lower after considering rising raw material costs and an acute labour shortage this year.

“Accordingly, we cut our FY22 net profit by 9% but increased our FY23 and FY24 earnings by 11% and 14% respectively, in anticipation of improved revenue recognition for new launches in FY23 and FY24 as labour shortage issues are resolved,” it added.