SP Setia (SPSB) reported 1QFY24 net profit of RM77.3m (+39.5% YoY, -47.8% Qoq) which is largely within our and consensus estimates. Despite 1QFY24 net profit only coming in at 21.3% and 22.3% of our and consensus full year estimates, we expect subsequent quarters to be stronger. Both Group revenue and pre-sales in 1QFY24 are lifted by higher contribution from sale of nonstrategic plots of land. The Group chalked RM1.42bn pre-sales in the first quarter, which is on track to meet its FY24 sales target of RM4.4bn. Net gearing improved further to 0.45x, from 0.49x while unbilled sales stood at RM5.38bn as at endMarch 2024. All told, no change to our earnings estimates. With current sector valuations trading higher at ~0.65x book value, we adjust SP Setia’s TP from RM1.00 previously to RM1.30, pegged at ~50% discount to its book value (or about 14.6x of its FY25 EPS). Granted, the Group might see its earnings bumped higher if more land sales materialise. Until we see more traction in increased property sales coupled with margins recovery however, we would prefer to stay on the sidelines. Call on SP Setia is cut to Neutral.

• 1QFY24 property revenue rose 57% YoY to RM1.4bn mainly due to the higher contribution from Vietnam with the handover of Eco Xuan and land sale revenue (RM424.2m). As such, Group PBT of RM180.8m improved by 38.6% YoY mainly contributed by higher gross profit though partially reduced by higher financing cost. Separately, its de-gearing exercise continues to bear results with 8% improvement in net gearing ratio (0.45x) achieved in 1QFY24 from 0.49x in the previous quarter. Unbilled sales stood at RM5.38bn as at end-March 2024.

• On track to met FY24 sales target of RM4.4bn. The Group netted RM1.42bn sales in 1QFY24, primarily due to land sales (RM731m) and also mainly contributed by the Southern and Central region domestically. Property launches are still not meaningful yet at only RM146.2m worth unveiled during the quarter but we understand that it is looking to ramp up launches in subsequent quarters. To recap, as for launches in FY24, the Group will continue with its development plans in Vietnam and Australia, where for the latter, the Group expects to maintain the momentum of its existing presence in Australia, which will be strengthened through the development of the newly-acquired Sydney land. Within Malaysia, the focus will again be on the projects at the Central region with industrial offerings in Setia Alaman Industrial Park in Klang, and the two residential towers by Setia Federal Hill in Kuala Lumpur.

Source: PublicInvest Research - 17 May 2024