THE soft property market coupled by the disruptive movement control order (MCO) mechanism have impacted many developers considerably.
Household name S P Setia Bhd is not spared as evident in the developer posting a net loss of RM376.51 mil for its 9M FY2020 (9M FY2019: RM 273.59 mil) while its revenue dipped 32.6% to RM2.11 bil (9M FY2019: RM3.13 bil).
This, according to CGS-CIMB Research, is largely due to impairment of completed inventories from Setia Sky 88 in Johor and Setia Sky Vista in Penang; while the impairment for its Battersea Power Station project in central London was due to potential delay of work in progress and inventories under development (Phase 2 and Phase 3a) amid the COVID-19 pandemic.
“There is possibility that the impairments could be reversed when the situation improves over time,” wrote analyst Ngo Siew Teng in a results review.
Also on the bright side, the research house pointed out that the developer secured circa RM2.3 bil of new property sales in its 9M FY2020 (vs RM3.1 bil in 9M FY2019) which makes up about.60% of its FY2020 sales target of RM3.8 bil.
“We observe that the group registered circa RM1.4 bil of new sales in 3Q FY2020 post-MCO (vs RM875 mil in 1H FY2020) which could be due to new sales conversion of the pent-up bookings in 2Q FY2020,” noted Ngo.
As of end-October, the group secured circa RM2.9 bil worth of new sales and had a booking pipeline of RM1.7 bil.
“S P Setia will focus on fast conversion of these bookings into sales,” opined Ngo. “Given the pick-up in sales momentum post-MCO and a good product mix skewed towards landed homes, we believe its FY 2020F sales target should be achievable.”
As of end-Sep 2020, S P Setia’s total unbilled sales stood at RM9.8 bil (vs RM10.5 bil of end-September 2019).
All-in, CGS-CIMB Research maintained its “add” rating on S P Setia with an unchanged target price of 94 sen as it remains positive on the developer given (i) its attractive valuation; (ii) massive land bank to cater for changes in consumer preferences; and (iii) anticipated earnings improvement in FY2021-2022F.
“We see limited downside to its share price as the stock has been trading at a trough valuation of less than 0.3 times price-to-book ratio since 2001,” added the research house.
Meanwhile, AmBank Research expects S P Setia to remain prudent moving forward with limited new launches, concentrating mainly on mid-range landed units in established townships in view of the challenging environment.
“In addition to that, the company has also put in place several cost rationalisation initiatives for better operational efficiency,” noted analyst Thong Pak Leng.
“We believe FY2020 will remain profitable, supported by strong unbilled sales of RM9.82 bil, overseas contribution and inventory clearing efforts.”
Against the backdrop of S P Setia’s gearing having increased to 65.3% from 63.5% quarter-on-quarter with an interest coverage ratio of 1.5x, AmBank Research retained its “hold” rating on the developer with an unchanged fair value of 70 sen/share.
At 10.36am, S P Setia was up two sen or 2.8% to 73.5 sen with 1.02 million shares traded, thus valuing the company at RM2.98 bil. – Nov 16, 2020
