KUCHING: SP Setia Bhd (SP Setia) is on track for a record year given the group’s strong earnings visibility, in analysts’ view.
AllianceDBS Research Sdn Bhd (AllianceDBS Research) continued to laud SP Setia for the group’s strong earnings visibility which is supported by RM11 billion in unbilled sales (2.1-fold financial year 2015 forecast (FY15F) property development revenue).
AllianceDBS Research noted that the group booked RM1.8 billion property sales in the first half of FY15 (1HFY15), of which RM840 million is attributed to the Battersea Power Station project in London.
“This is also on track to achieve RM4 billion sales target for FY15,” it said.
Meanwhile, the research house said that SP Setia’s township products, such as Setia Alam, Setia Eco Hill and Setia Eco Glades, will continue to do well given strong demand for lifestyle landed properties with good infrastructure and amenities.
AllianceDBS Research further noted that SP Setia is set to enjoy a boost in revenues from the group’s overseas projects (Australia, Singapore, UK) with RM1.5 billion and RM2.3 billion unbilled sales to be recognised progressively in FY15 and FY16, respectively.
It added that FY15 will be mainly driven by the RM1.4 billion Fulton Lane project (27 per cent of FY15 property revenue) in Australia which had been handed over recently, and will boost the third quarter of FY15 (3QFY15) earnings significantly.
On concerns over SP Setia’s succession plan, this issue continues to drag share price performance, but the research house noted that operations are intact and property sales remain encouraging despite the softer sentiment.
“The group’s solid fundamentals are a strong investment merit,” it said.
As such, the research house had a ‘buy’ call for SP Setia with a target price of RM4.10 per share, based on 30 per cent discount to Revised Net Asset Value (RNAV) of RM5.85.
However, there were key risks to AllianceDBS Research’s view in terms of potential asset injection by Permodalan Nasional Bhd (PNB) and weak sentiment towards the property market.
It noted that pricing will be a concern, along with culture differences.
The research house said that bigger may not necessarily be better as SP Setia already has its hands full with more than 4,000 acres valued at RM70 billion gross development value (GDV).
On the second aforementioned key risk, AllianceDBS Research noted that the relatively soft property market could lead to weaker sales.
“Nevertheless, SP Setia’s focus on township development will make it less vulnerable to the weaker sentiment, judging by the strong demand for its recent launches,” the research house said.