KUALA LUMPUR: CIMB Equities Research expects SP Setia’s earnings to be stronger in the coming quarters, driven by lumpy earnings contribution from its Battersea Power Station (BPS) project in London.
It said on Friday although SP Setia’s 1Q17 core net profit accounted for only 13% of its and 12% of Bloomberg consensus full-year forecasts, it as in line with expectations.
“We keep our EPS forecasts and Hold call. However, we raise our target price to RM3.65, after narrowing the target realised net asset value (RNAV) discount from 25% to 20% to reflect the improving sentiment on property stocks,” it said.
Commenting on the results for the first quarter ended March 31, 2017, CIMB Research pointed out that excluding forex gains and losses, the property developer’s 1Q17 core net profit fell 10% on-year to RM88mil.
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SP Setia’s reported earnings in 1Q17 excluded the accrued dividend payable to the holders of preference shares, which were issued in December 2016.
“We derive at a core net profit of RM88mil for 1Q17 after deducting the estimated dividend payment of about
RM18mil accrued in the quarter,” it said.
On the outlook for SP Setia, it said while 1Q17 core net profit was only 13% of its full-year forecast, the earnings should improve in 2Q-3Q17 due to the completion of more units in the first phase of BPS.
“We estimate that about RM1.3bil worth of effective unbilled sales (after accounting for SP Setia’s 40% share) could be recognised in the next two quarters upon the expected handover of units in BPS Phase 1 to its buyers. The RM1.3bil unbilled sales are equivalent to c.140% of SP Setia’s 1Q17 revenue,” it said.
CIMB Research said SP Setia sold RM427mil worth of properties in 1Q17, registering a growth rate of 40% on-year.
“Although 1Q17 sales were only 11% of its full-year target of RM4bil, we believe its sales target remains on track. The relatively weak sales in 1Q17 were a result of seasonality and its sales have improved substantially after 1Q17. In April 2017 alone, SP Setia recorded RM374mil worth of sales, equivalent to 88% of the sales it achieved in the entire 1Q17,” it said.
SP Setia aims to derive 23% of its sales this year from its international projects.
The research house expect the company’s international sales to gain pace in 2H17 after the planned launched of its A$640mil (RM2.05bil) mixed development project in Melbourne in 2H17. It also expects more launches in its local township projects in the coming quarters to boost its sales.
“We raise our TP after lowering the target RNAV discount to 20%. While we think the sector’s fundamentals have not changed much, the sentiment on property stocks have improved significantly YTD due to the buoyant KLCI and series of corporate exercises in the property sector.
“The 18% gain in SP Setia’s share price YTD was also partly driven by the better sentiment, in our view. We lower our target RNAV discount as we think SP Setia’s current share price could be supported by the better stock market sentiment.
“The key upside risk to our Hold call are stronger-than-expected sales while the key downside risk is deterioration of sentiment on property stocks.
“For exposure to the Malaysian property sector, we prefer developers with more attractive valuations, stronger growth prospects and/or higher dividend yields. These developers include Eco World Development Group (Add, TP:RM1.70), UOA Development (Add, TP:RM2.85) and LBS Bina (Add, TP:RM2.15),” said the research house.
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