Enhancing business sustainability; U/G to BUY
While SPSB strives to achieve its MYR4b sales goal (-6% YoY) for FY22, it is
also aiming to strengthen its financials by paring down its net gearing (0.6x
as at Dec 2021) via non-core land sales, reducing inventories, optimizing
land use by bringing in strategic partners and improving/increasing
digitalization. No change to our earnings forecasts and MYR1.42 TP (0.4x
FY22 PBV). We upgrade SPSB to BUY in view of a total return of >15%.
Striving to lower its debt level
To lower its debt level, SPSB is looking at several measures including
monetizing non-core landbank (about 1,000 acres) and bringing in
strategic JV partners for some of its projects such as Setia Federal Hill (52
acres; MYR20b in GDV) in order to lower the upfront costs. Apart from
that, SPSB will continue to focus on clearing its completed inventories
while being careful in launching new projects. To recap, SPSB’s net gearing
was 0.6x as at end-Dec 2021 (industry average: 0.33x).
Cost saving measures to protect profit margins
Margin outlook may be unexciting due to higher raw material prices and
SPSB’s short-term focus on clearing its completed inventories (by offering
attractive discounts/rebates). Depending on the projects’ popularity and
saleability, SPSB may have no choice but to absorb some of the additional
operating costs. To cushion the impact from higher raw material costs,
SPSB has adopted various cost-cutting measures including enhancing its
digitalization (marketing) initiatives, which have saved almost 50% of its
marketing costs as compared to traditional marketing methods.
Positive surprises from Battersea Power Station?
Potential surprises could come from the Battersea Power Station (BPS)
commercial asset in 2027. The commercial asset, which was sold to a 65:35
PNB:EPF JV company for GBP1.58b in 2018, is under a price adjustment
mechanism. The mechanism enables SPSB to enjoy the upside in the
development if the actual rental income performs better than the agreed
5% yield on the GBP1.58b base price. As at Feb 2022, 84% of the
commercial spaces have been successfully leased out to quality tenants
including APPLE Inc. The retail spaces are slated to be opened in Sep 22