Overseas projects to lift 2H22F earnings
? 1QFY22 results were below expectations due to lower-than-expected
margins arising from rising raw material prices and labour shortage.
? 1Q22 new property sales stood at RM679m, with a booking pipeline of
RM655m.
? We cut our FY22-24F EPS estimates to reflect the higher costs and changes
in project development timeline. Reiterate Add.
Key results highlights
SP Setia’s 1Q22 core net loss of RM12m was below our and Bloomberg consensus’ fullyear net profit forecasts of RM371m and RM366m, respectively. The underperformance
was due to lower-than-expected margins, arising from rising raw material prices and
shortage of labour. 1Q22 core net loss of RM12m (vs. 1Q21’s RM40m core net profit)
was mainly dragged down by: i) weaker revenue (-18% yoy) due to projects timing
(higher volume of development phases were completed and handed over in 1Q21) and
lower site progress due to labour shortage, and ii) weaker gross margin (-1.3% pts) from
higher raw material prices.
1Q22 new property sales at RM679m
1Q22 new property sales stood lower at RM679m (vs. RM1.07bn in 1Q21, excluding noncore land sale of RM114m) due to the absence of the Home Ownership Campaign (HOC)
in 2022; 1Q22 new property sales represented 17% of its FY22F sales target of RM4bn.
As at end-1Q22, the group had secured RM655m bookings, which is likely to be
converted into new sales soon. The group launched landed residential and commercial
projects worth up to RM505m GDV in 1Q22 (vs. RM525m in 1Q21). SP Setia revised
down its FY22F planned launches to RM4.04bn GDV (from RM4.25bn previously). Total
unbilled sales stood at RM9.8bn at end-Mar 22 (vs. RM10.1bn at end-Mar 21).
Cut FY22-24F EPS to factor in higher costs
Management guided for construction cost to go up 10-15% due to rising building material
prices, but the group is also reducing overall costs through cost efficiency efforts to
sustain its gross profit margin within 20-25%. We cut our FY22-24F EPS estimates by 8-
24% to reflect the higher costs and change in project development timeline. We expect
stronger 2H22F earnings to be supported by the completion and handover of overseas
projects (Sapphire by the Gardens, Battersea Phase 3A and Daintree Residence).
Reiterate Add
Retain Add with a revised TP of RM1.83 based on FY23F P/BV of 0.6x (its 5-year mean
P/BV). We use a 5-year mean P/BV to reflect its pre- and post-lockdown trading range
following business normalisation. We like SP Setia for its: i) strong FY22F EPS growth
due to the handover of overseas projects, ii) massive landbank, allowing it to cater to
changes in consumer preferences, and iii) cheap FY23-24F valuation of 0.33x P/BV,
which is below its peers’ 0.46x.