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SP Setia ‘highly likely’ to achieve RM4 billion sales target for FY12

by Venu Puthankattil, venu@theborneopost.com. Posted on September 15, 2012, Saturday

ACHIEVABLE TARGET: Photo shows an artist’s impression of SP Setia’s Aeropod, a mixed use development project in Sabah. With robust RM3.31billion sales seen in the first 10 months of FY12, the group has been said to be ‘highly likely’ to achieve its FY12 sales target of RM4 billion.

KUCHING: SP Setia Bhd (SP Setia) is highly likely to achieve its sales target of RM4 billion for the financial year 2012 ending October (FY12), with strong indicators coming from its results for the first nine months of FY12 (9MFY12) and third quarter (3QFY12) which are indicative of the group’s strong sales performance thus far.

The group’s 3QFY12 net profit of RM100 million came in within consensus expectations; operating margin expanded to 16.5 per cent from 14.4 per cent in the previous quarter, on the back of higher selling prices of the company’s property products.

The group’s net gearing grew slightly to 33 per cent from 32 per cent in 2Q, which explained the need for it to raise equity funding via a 15 per cent placement exercise to finance its Battersea and other ongoing projects.

The group achieved RM3.31billion in sales 10 months into FY12, just RM688 million away from its sales target of RM4 billion which RHB Research Institute Sdn Bhd (RHB Research) analyst Loong Kok Wen believed the company could easily achieve, in line with her forecast.

The analyst explained to The Borneo Post that property prices in general had been on the rise since the end of 2010 and as such, SP Setia was able to achieve robust sales figures, cover its operating expenses and maintain its earnings margins.

“Overall, sales have sustained at about RM330 million to RM360 million per month from April to July, and RM457 million sales were achieved in August mainly due to two projects.

“Out of the 11 luxury bungalows at Brook Residences Penang, six units were sold at an average price of RM6.2 million each.

“Similarly, nine units of the 16 shop lots released in Aeropod Sabah were taken up at an average price of RM8 million to RM9 million each,” she pointed out.

Meanwhile, the research arm of TA Securities Holdings Bhd (TA Securities) noted that looking forward, sales for the group were expected to come from Setia Eco Glade and Setia Sky 88.

“Last month, SP Setia launched Phase 1 of Setia Eco Glade with a gross development value (GDV) of RM200 million, comprising Superlink, Semidees and Bungalows at an average selling price (ASP) of RM400 per square foot.

“The company has locked in 90 per cent take-up rate.

For Setia Sky 88 with a GDV of RM450 million, the project is technically sold out given the amount of booking far exceeding the available units.

“In view of this, we believe the group’s internal sale target of RM4 billion for FY12 is highly achievable,” it said, concurring with Loong’s expectation for the target.

In the larger picture, all eyes are on the Battersea project (for which SP Setia is in a three-party development consortium) due to its scale with a gross development value size of RM40 billion.

Loong opined, “While we do not think marketing of the project will be an issue, the execution of the development is our concern as London is a new market to the consortium after all.

“Investors will also have to be patient until the maiden earnings from London kicking in from FY17 onwards,” she said as she adjusted RHB Research’s FY12 earnings forecast up by 2.5 per cent as ‘4Q results are typically stronger’.

The analyst also increased FY13 and FY14 earnings forecasts slightly by one and 2.5 per cent respectively while maintaining the stock’s fair value of RM3.90 per share.

TA Securities also maintained its discounted free cash flow to equity (FCFE) valuation at RM4.60 per share based on a discount rate of 8.4 per cent, implying a potential upside of 21.7 per cent.

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