AmBank Research expects lower net profit for SP Setia in 3Q


AMBANK Research expects SP Setia Bhd to record a weaker net profit in its third quarter this year (3Q21) with a potential quarterly decline of up to 25%.

Its analyst Lee Ching Poh said the contraction in its net profit would stem from a decline in property sales during the quarter despite various promotional campaigns and slower progress billings due to constrained construction activities because of the pandemic.

“We estimate that 3Q21 local sales momentum has slowed down as a result of movement restrictions. For international projects (which consisted of 24% of 1HFY21 total group sales),

The segment’s main contributor, Daintree Residence in Singapore, could register lower sales due to fewer available units left,” Lee said in a note on Friday.

SP Setia’s 3Q21 results are due to be announced next month.

On the local front, Lee opined that visitor footfalls remain soft despite the gradual reopening of sales galleries in mid-August and September.

This is because consumers are still cautious on physical visits given that non-fully vaccinated individuals are still subjected to restriction, said Lee.

“We think that the factors that are holding back consumers on big ticket purchases are mainly uncertain job security and tight bank lending policies.

“The unemployment rate is still elevated at 4.8% in July which implies weak home buying ability.

“Banks continued to be prudent in residential property lending. According to the latest Bank Negara monthly statistics, we assume that there were fewer transactions in the property market in July and August as reflected in the declining loan application trend while the loans applied/ loans approved ratio fell to 35% in August (from 40% in July),” added Lee.

Despite the weak start for the company in 2H21, the research firm believes that sales could pick up in 4Q21 on the back of brightening buyer sentiment and easing movement restrictions buoyed by the rise in vaccination rates.

The firm also favours the group’s digital marketing initiatives to secure new sales.

SP Setia’s unbilled sales of RM10.3 billion as at Jun 30, 2021 which translates to 2.4 times its financial year 2021’s sales, provided adequate near-term earnings visibility, said Lee.

AmBank Research downgraded SP Setia’s recommendation to ‘Hold’ from ‘Buy’ with an unchanged fair value of RM1.26 per share following the three-month share price appreciation of 13% which provides limited future upside.

“Our fair value is based on a 40% discount to its revalued net asset value and a neutral environmental, social and governance rating of three stars,” it added.