S P Setia’s 1Q results below expectations

by **Cals** Tue 25 Mar 2014, 00:41

Business & Markets 2014

Written by Maybank IB Research

Monday, 24 March 2014 10:08

S P Setia Bhd
(March 21, RM2.95)
Maintain hold with a reduced target price of RM3.35: Excluding an estimated net gain of RM29 million from one-off commercial land sales at Setia Alam, Shah Alam, Selangor, S P Setia’s core net profit of RM68 million for the first quarter ended January of financial year 2014 (1QFY14) — down 27% year-on-year (y-o-y), -47% quarter-on-quarter (q-o-q) — only accounted for 13% of our and 14% of consensus full-year estimates.

The earnings shortfall was attributed to higher than expected marketing and administrative expenses, as well as higher construction costs on labour shortage. As a result, pre-tax margin (ex-land sales) declined by 4 percentage points (ppts) y-o-y and 5 ppts q-o-q.

Locked in new property sales for the first four months of FY14 were RM1.8 billion (80% local, 20% overseas), on track to meet the just released sales target of RM5 billion for FY14 (-39% y-o-y). Township projects such as Setia Eco Hill in Semenyih, Selangor, and Parque Melbourne in Australia were the key sales drivers, contributing 35% and 12.5% to sales for the first four months of FY14.

The near-term earnings outlook will be backed by unbilled sales of RM10.5 billion as at end-January (2.7 times our FY14 revenue forecast; 30% from UK and Australia projects whose profits can only be recognised upon completion). We cut our earnings forecasts to factor in higher administrative and marketing as well as construction costs (-2ppts to -3ppts cut in project margins). Our revised net asset value, is however, largely unchanged at RM4.78 ( down five sen) after factoring in the RM29 million disposal gain. — Maybank IB Research, March 21

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This article first appeared in The Edge Financial Daily, on March 24, 2014.