S P Setia’s sizeable landbank to support valuations

by **Cals** Sun 21 Sep 2014, 18:52

Business & Markets 2014

Written by RHB Research

Friday, 19 September 2014 10:12

S P Setia Bhd
(Sept 18, RM3.26)
Maintain buy with target price of RM4.08: S P Setia’s third quarter financial year 2014 (3QFY14) results came in below expectations, mainly due to the slower progress billings, goods and services tax financial impact, and long-term incentive plan expenses.
As at August, the company chalked up RM3.81 billion in new sales, and should be on track to meet its RM5 billion target for FY14.
Despite the weak earnings momentum, our buy rating is mainly premised on the merger and acquisition (M&A) angle, with fundamental value driven by its cheap land bank.
S P Setia’s 3QFY14 results missed our estimate and market expectation by 15% and 26%, respectively.
Sales in the Johor region fell by at least 70% year-on-year, signalling the challenging market conditions. Although the momentum for sales and launches was partly dampened by the cooling measures, we believe the slower growth also reflects the lack of solid leadership, management’s strength and staff’s spirit subsequent to the departure of Tan Sri Liew Kee Sin, the former chief executive officer (CEO) of S P Setia, in April.
In view of the continued disappointment in earnings, we lower our FY14 and FY15 earnings forecasts by 9% to 11%. We maintain our buy rating and fair value of RM4.08. We still believe that an M&A or restructuring plan will be initiated by its major shareholder over the next six to nine months.
Just on Wednesday, Datuk Voon Yin Tow announced his resignation from his position as acting president and CEO, and board member. He will be leaving on Jan 1, 2015, instead of April 30, 2015, as originally planned. — RHB Research, Sept 18

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This article first appeared in The Edge Financial Daily, on September 19, 2014.[/size]