We met up with SP Setia recently, with the Management still optimistic that its sales target of RM4bn is still achievable albeit the current difficult trading environment. Recall that it has new projects worth c.RM4.8bn lined up to be unveiled in the next few months. Main launches, again will be driven by projects in the Central region, with projects such as new phases in Setia Alam and Setia Ecohill 1 & 2 and a new eco-themed township in Rawang i.e. Setia Eco Templer. Near term, earnings visibility is good with c.RM9.2bn unbilled sales. In FY16, it expects earnings contribution from Battersea Power Station and Parque, Melbourne but most of it will only be recognized towards end-Dec. Maintain Outperform with RM3.85 TP, based on 20% discount to RNAV.

• RM4bn Sales Target. The Group is hopeful that it can sell RM4bn of new properties. In the 14-month FY15, it surpassed its FY15 sales target by a comfortable margin after securing new sales totaling RM4.3bn with c.67% of the new sales was derived from the local market or c.RM2.9bn. The remaining is from international sales, of which RM1.2bn came from Battersea Power Station, London. In FY16, local sales are expected to dominate the new sales as 98% of total GDV (c.RM4.7bn) of the planned new launches are from Malaysia projects. Admittedly, new launches so far are quite small with two new phases in Setia Alam launched. However, it is confident that sales would regain momentum in 2H2016.
• Projects in the pipeline. It plans to unveil projects with a total GDV of RM4.8bn consisting c.8,200 units. In FY15, it sold RM4.3bn with c.RM1.4bn from overseas. Hence, with current soft demand and stricter lending policy, we believe that its RM4bn is overly aggressive. That said, we understand that its 10:90 homeownership scheme, which was introduced recently was well received. It plans to market more projects with the homeownership scheme going forward which could aid new sales.
• Maintain Outperform and RM3.85 TP with 20% discount to RNAV of RM4.80. All told, we still favor SP Setia for its sizable and well located landbank, consistent performance, good earnings visibility and decent dividend yield.

Source: PublicInvest Research - 29 Apr 2016