SP Setia expects to see slower progressive billings


SP SETIA Bhd’s progressive billing is expected to slow down due to the limited capacity on project sites, leading to delays in new project launches amid weaker buyer sentiment amid sluggish economic growth.

CGS-CIMB Equities Research Sdn Bhd analyst Ngo Siew Teng, however, reiterated an ‘Add’ call on the counter.

“Despite the lockdown, SP Setia maintains its financial year 2021 (FY21) new sales target, which could be lifted by strong sales and bookings secured prior to the Full Movement Control Order (FMCO).

“SP Setia does not expect project handover to be delayed, although revenue recognition could be weaker due to strict standard operating procedures (SOPs) on-site,” she wrote in a note yesterday.

She added that in a recent meeting with SP Setia’s management, the developer retained its FY21 new sales target of RM3.8 billion, which will likely be supported by its RM1.1 billion new sales and RM1.3 billion bookings secured in the first quarter (1Q).

“Management guided the sales momentum in April to May 2021 was quite strong. The extension of the Home Ownership Campaign to Dec 31, 2021, is positive for developers, in our view, as this could spur property buying sentiment in light of the property industry’s current supply glut and nationwide lockdown,” she said.

Depending on market conditions, SP Setia’s FY21 new launches could be lower than the initially planned RM3.7 billion in gross development value.

“Following the implementation of the FMCO and Enhanced MCO (EMCO) at certain areas since June 2021, we believe its construction progress and sales conversion have been affected somewhat given the strict SOPs in place which allows 60% workers capacity limit for project sites under FMCO areas and stop work orders for EMCO areas.

“Nonetheless, SP Setia does not expect project handover to be delayed at the moment,” she stated.

Sales galleries are not allowed to operate under Phase 1 of the National Recovery Plan hence, SP Setia is currently engaging potential buyers via digital marketing initiatives and virtual events.

“It has also deferred some of its hotel openings to next year and 2023 given the travel restrictions and high number of Covid-19 cases globally,” Ngo added.

CGS-CIMB cut its FY21 earning per share (EPS) forecast for SP Setia by 26% but raised its FY22-23 EPS forecasts by 7% to 12% on expectations of new launches and stronger revenue recognition in FY22-23.

“Our target price is unchanged at RM1.42, which is still based on FY22 price to book value ratio (P/BV) of 0.47 times, which is negative 0.5 standard deviation from its three-year mean P/BV.

“We like SP Setia for its attractive valuation which is lower than peer average of 0.43 times, massive land bank to cater to changes in consumer preferences, and anticipated earnings improvement in FY21-22,” she wrote.

CGS-CIMB sees limited downside as the stock price has been trading around valuations of 0.3 times P/BV since 2001.