S P Setia poised to record better financials in FY21/22, says HLIB Research

KUALA LUMPUR (May 15): S P Setia Bhd is poised to record better financials over the next two years, backed by its overseas projects, particularly in the UK and Australia, according to Hong Leong Investment Bank (HLIB) Research.

The property developer is operating in a challenging environment this year amid the ongoing Covid-19 outbreak and fragile political climate, but HLIB said the dismal outlook is expected to bottom by year-end.

“FY20 (financial year 2020) is expected to be a bottom year as FY21 and FY22 will be supported by large foreign recognitions from the UK and Australian projects,” the research firm said in a note today.

“As the group expects economic activities to take a breather, sales target for FY20 has been revised to RM3.8 billion from RM4.55 billion, which represents a drop of circa 16% year-on-year,” it added.

HLIB has maintained its “hold” rating on S P Setia with a lower target price of 75 sen from 85 sen previously, with an 80% discount to RNAV of RM3.77. The stock was traded at 77 sen, at the time of writing.

According to HLIB, S P Setia will continue efforts to clear its RM1.3 billion worth of inventories to support earnings in this year’s challenging environment.

It also noted that some construction sites which have met the eligibility requirements and gotten approval have resumed construction work albeit at a slower pace.

S P Setia’s earnings of RM28.5 million in the first quarter of this year were below HLIB’s and consensus estimates largely due to a higher-than-expected effective tax rate and the halt in construction activities from the movement control order implementation.

The research house has cut its FY20 and FY21 earnings forecasts for S P Setia by 37.9% and 4.5%, respectively, after imputing a higher effective tax rate, slower progressive billings and weaker sales in FY20.

“We also introduce our FY21 earnings forecast at RM591.4 million,” it said.

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