S P Setia likely to see stronger 4Q results

Completion of Australian projects to drive earnings

“To recap, the group’s planned launches in the financial year 2022 amount to Rm4.04bil gross development value.” CGS-CIMB Research

KUALA LUMPUR: S P Setia Bhd could post a stronger set of fourth-quarter (4Q) results, based on the completion of some of its projects.

This is despite the generally cautious outlook for the property sector in the face of rising interest rates.

According to CGS-CIMB Research, S P Setia’s fourth quarter results are expected to come in stronger with the handover of its Australian projects, Sapphire by the Gardens and UNO Melbourne.

“We believe the group is on track to achieve its sales target for the financial year 2022, as the management expects new property sales in the second-half, given its good product mix that is skewed towards landed homes,” the research house said.

CGS-CIMB Research noted that as of the end of September 2022, S P Setia’s total unbilled sales stood at Rm8.4bil, compared with Rm9.8bil as at the end of September 2021.

“To recap, the group’s planned launches in the financial year 2022 amount to Rm4.04bil gross development value (GDV).

“We expect 2022 to 2024’s net gearing to improve on the back of international project handovers and the potential sale of non-strategic land in the near term,” CGS-CIMB Research said.

Hence, Kenanga Research expects S P Setia’s 4Q net profit to be strong at Rm135mil once the handover of Sapphire Melbourne is completed in October 2022. Sapphire Melbourne has a GDV of Rm1.2bil, it said.

“The contribution from Sapphire will spill over to the financial year 2023 on gradual handovers, while UNO Melbourne, which has a Rm1.5bil GDV will also start to contribute upon its completion in 2023.

The research house said it is cutting S P Setia’s financial year 2022 and 2023’s net profit forecasts by 36% and 21%, respectively.

“We remain cautious on S P Setia as the prospects of the property sector seem to be deteriorating further, clouded by eroding affordability due to rising interest rates and elevated input costs, and its near-term performance will continue to be weighed down by high debt servicing obligations and a high-cost structure,” Kenanga Research said.

Kenanga Research said it is reducing its target price to 38 sen from 58 sen after raising its revised net asset value discount to 90% to reflect its elevated debt levels as it has the highest net gearing within its coverage.

The research house also noted that this might potentially lead to liquidity issues in a weaker market environment moving forward.

Meanwhile, UOB Kay Hian (UOBKH) Research is more positive and upgraded S P Setia to a “buy” given its recent share price weakness.

“However, we lower our target price to 82 sen in tandem with the earnings adjustment.

“Our target price is based on a 78% discount to its revised net asset values, which implies 0.2 times 2023’s price to book value,” itsaid.

“We believe its near-term earnings recovery has been fairly priced in at its current valuation, with a lack of catalysts in 2022 and an interest rate hike as the potential sentiment dampener for the sector,” UOBKH Research added.