Review

• S P Setia’s 9M24 net profit of RM472.4mn came in within expectations, representing 87% of our full-year estimates and 83% of the consensus estimates. We anticipate that 4Q earnings will normalise, given that most of the land sales have already been recognised in the first nine months of the year.

• 9M24 revenue surged 42% YoY to RM4.2bn, primarily driven by higher land sales revenue (RM1.27bn in 9M24 vs. RM124mn in 9M23) and stronger contributions from property developments in the Klang Valley and Johor. Net profit jumped 214% YoY to RM472.4mn, supported by robust margins from land sales (EBIT margin expanded by 7.3 percentage points to 30.4% in 9M24) and a RM56mn gain from the disposal of its 50% equity stake in Retro Highland Sdn Bhd to MMC Land Sdn Bhd, related to the Taman Ikan Emas redevelopment project in Cheras.

• However, the strong performance was partially offset by higher joint venture (JV) losses, which widened to RM178.1mn in 9M24 from RM66.4mn in 9M23. The increased losses were largely attributed to challenges in the Battersea Power Station JV, including the impact of MFRS 17 (Insurance Contracts) and higher development costs.

• Sequentially, 3Q24 net profit plunged 66% to RM100mn, primarily due to the recognition of significant land sale revenue (RM564mn) from Taman Pelangi Indah 2 in 2Q24.

• S P Setia recorded new property sales of RM3.2bn in 9M24, a 4% YoY decline, with domestic projects contributing 94% of total sales. As of September 2024, unbilled sales stood at RM3.5bn, ensuring 12 months of earnings visibility for the group.

Impact

• No change to our FY24-26 earnings forecasts pending more updates from an analyst briefing to be held later today.

Outlook

• We believe S P Setia's FY24 sales target of RM4.4bn is attainable, supported by 1) YTD sales already reaching 73% of the target, 2) RM556mn in bookings awaiting conversion to sales, and 3) RM1.97bn in new launches planned for 4Q.

• S P Setia launched ATLAS Melbourne in October, a 73-storey mixed-use development at 383 La Trobe Street in Melbourne's CBD, with a GDV of AUD886.7mn (RM2.7bn). The project, to be developed in stages, is expected to anchor 4Q sales.

• Through de-gearing strategies like monetising non-strategic land and clearing unsold inventory, S P Setia successfully decreased its net gearing to 0.35x in September 2024 from 0.41x in June 2024.

Valuation

• We maintain our Buy recommendation on S P Setia with an unchanged target price of RM1.91/share. Our valuation is based on P/Bk multiple of 0.7x against its CY25 BPS and a 3% ESG premium incorporated into our TP.

Source: TA Research - 26 Nov 2024