S P Setia - 9M12 within

Period    3Q12 / 9M12

Actual vs. Expectations

 9M12 net profit of RM267m was within expectations, making up 75% each of street’s and our FY12E net profit of RM358m. 

 10M12 sales of RM3.3b (+43% YoY) are on schedule to meeting SPSETIA’s FY12E sales target of RM4.0b and our RM3.8b (refer overleaf). 

Dividends   None as expected. 

Key Results Highlights

 YoY, 9M12 net profit rose 9% on the back of stronger billings and sales from on-going projects (Setia Alam, Setia Eco Park, Setia Sky Residence, Johor townships, Penang projects) whilst property pretax margins improved by 1.1ppt to 22.0% on higher margin project mix and lower finance cost (-50% YoY). Stripping off 9M11’s one-off gains on disposal of Tenby, 1H12 earnings rose 20% YoY. 

 QoQ, 3Q12 earnings of RM100m was buoyed by similar factors mentioned above, including a +2.1ppt improvement in property pretax margins, which more than compensated the 22% drop in combined construction and wood-based manufacturing pretax profit. 

Outlook   Recall the group has proposed a 15% placement to raise up to RM1.0b to fund Battersea and other sizeable projects like 1NIH/MoH land swap, Australian projects, Qinzhou Industrial Park (refer to 14/8/12 report). Battersea (Phase1: GDV RM1.0b) is being previewed with targeted official launch in Apr-12. 

Change to Forecasts

 No changes to FY12-13E earnings as we maintain our sales targets of RM3.8b-RM4.0b. Unbilled sales of RM5.9b provide up to 2 years visibility largely due to its accumulated billings from Australian BTS projects. 

Rating  Maintain MARKET PERFORM

 Limited downside risks at 1.7x FY13E PBV as the group is trading at -0.5SD or near its troughs at - 1.0SD. Although there are catalytic projects at hand, it appears SPSETIA is still finding it tough to command premium valuations because of liquidity issues. We reckon the cash call may ironically result in ‘positive’ sentiments, albeit EPS dilutions, as it will solve public shareholding requirements.

Valuation    TP of RM3.80 based on 30%* discount to FD SoP RNAV of RM5.46. Applied discount is mid range based on our 15%-75% discount used for developers under our coverage (refer overleaf). 

Risks   Sector risks and liquidity issues.

Source: Kenanga