SP Setia (SPSB) registered weaker than expected 3QFY23 profits, with YTD net profit coming in at RM150.3m (-31% YoY) or only constituting about 45% and 51% of our and consensus estimates. We had earlier expected profits to be stronger, driven by land sale contributions (which are now deferred to early FY24) and handover of overseas projects, where margins also came in short of expectations. As such, we adjust our FY23/FY24/FY25 estimates by - 37%/+60%/-22% after factoring changes in margin and billing (especially gains from land sale) assumptions. Separately, net gearing improved further to 0.53x, from 0.56x in 1QFY23. We believe it can easily meet its net gearing target of 0.5x by end-FY23. Sales for 9MFY23 totaling RM3.89bn is already at 93% of its FY23 sales target of RM4.2bn. Separately, it has also just announced the sale of 17.99 acres of land in Setia City, Selangor to KSL Bestari Sdn Bhd for RM228.8m, in line with its strategy to right size its landbank and strengthen its balance sheet. All told, we maintain our Outperform call with TP of RM1.20 pegged at ~60% (vis-à-vis sector average of ~0.5x to NTA. We still like the stock for its undemanding valuations and well-located landbank.

• 3QFY23 property revenue rose 22.8% YoY to RM994.5m, though pretax profit was higher by 5.2% only mainly due to handover of UNO Melbourne (Stage 2) but offset with higher financing cost. YTD, the Group secured total sales of RM3.89bn with local projects contributing RM3.37bn (c.87% of total sales) with the remaining RM523m or (13%) from international sales. On the local front, 54% of sales were from the Central region at RM1.82bn, supported by 40% sales contribution from the Southern region of RM1.35bn, while the remaining sales was primarily contributed from the Northern region at RM119m. We understand that the Group also cleared completed inventories to the tune of RM804m YTD. As of 30 September 2023, the Group has secured total bookings of RM450m with unbilled sales steady at RM6.76bn.

• Strengthening balance sheet. The Group sold another tract of land, with the latest being the sale of 17.99 acres of land in Setia City, Selangor to KSL Bestari Sdn Bhd for RM228.8m. To recap, other large tracts of land disposed are to Mah Sing Group Berhad (500 acres for RM392m in June) and Scientex JV (959.7acres for RM547.7m). The three deals are expected to bring in cash of about RM1bn, which among others, will be used to pare down its borrowings and redeployed to activate other projects. We are positive on the Group’s commitment to bring down its debt load. To recap, the Group aims to lower it to 0.5x by end-FY23, which among others, will be supported by sale of non-core assets such as land and investment properties (with estimated RM5bn total value).

Source: PublicInvest Research - 24 Nov 2023