Photo shows construction activities at the Battersea Power Station. The potential delay in the Battersea Power Station project could hamper take-up rates of the project which could impact SimeProp’s and SP Setia’s core net profits, analysts observed. — Reuters photo
KUCHING: The potential delay in the Battersea Power Station project could hamper take-up rates of the project which could impact Sime Darby Property Bhd’s (SimeProp) and SP Setia Bhd’s (SP Setia) core net profits, analysts observed.
According to recent media reports, Phase 2 and 3a of the Battersea Power Station project could be delayed until 2021 instead of end-2020 due to project complexities and the Brexit issue.
SimeProp and SP Setia suggest that they are still hopeful for part of Phase 2 completion by end-FY20, with the bulk of Phase 2 and 3a to be completed in FY21, which is in-line with analysts’ expectations.
Kenanga Investment Bank Bhd’s research team (Kenanga Research) noted that both companies intend to keep to FY20-21 completion deadlines.
It added that for Phase 2, risk of delays is less likely as there is just a ‘small portion’ left with a completion deadline of 1.5 years (by end-FY20). As for Phase 3a, while both did not provide the exact progress of completion, it estimated that it could be circa 30 per cent.
For now, it is optimistic that the projects would be delivered based on its current assumptions and original deadlines but it warned about the take-up rates of the project.
“Should there be delays, we caution a potential fall-through in take-up rates as buyers have the option to pull out.
“This is because in the UK, the buyer is obligated to go through with the purchase if the property is completed on time while failing to do so causes the buyer to forfeit their deposit.
“However, if the property completion is delayed beyond the contractual period, then upon completion, the buyer can opt to pull out and get their deposit back,” it explained.
“Although we are still of the assumption that the projects will be completed in time, we have opted to tone down our initial take-up rate assumptions given uncertainties from a prolonged Brexit.
“Assuming a worst-case scenario where all buyers pulled out, this would imply an eight per cent decline in core net profit in FY20 and potentially by 40 per cent in FY21,” Kenanga Research projected.
Despite the delay, the research team upgraded its call on SimeProp to ‘outperform’ while retaining the same rating for SP Setia.