SP Setia - Impacted by slower construction works Hold

Stock Name: SPSETIA
Company Name: SP SETIA BHD

Research House: AMMB

Price Call: HOLD

Target Price: 3.95

- SP Setia's 1QFY12 net profit came in at RM74mil which onlycovers 18% and 21% of our and consensus' estimates respectively. As expected nodividends were declared for the quarter.

- Although revenue slid by 5%, earnings jumped by 19% YoY toRM74mil due to strong GP margins of 30% (previously 25%) ' mainly attributableto strong selling prices and favourable product mix. 

- We believe our estimates are intact given that the grouphas a massive unbilled sales of RM3.9bil (1.8x FY11 revenue) and margins shouldalso be robust as they are realising strong property prices against attractiveland cost e.g. Setia Alam and Setia Eco Park's land cost at RM5-RM8psf.

- However on sequential basis, net profit dropped by 10%because of seasonal factor where construction works was affected by festiveseasons. Hence we are not changing our estimates as we expect net income torebound in the coming quarters underpinned by stronger progress billings.

- Setia broke another record where it generated highest evernew sales in a single quarter of RM933mil (versus RM735mil in 1QFY11) for1QFY12. 

- Latest set of figures also show that Setia already chalkedup a strong RM1.23bil (+23% YoY) in new sales for the first 4 months into thecurrent fiscal year. We believe its target of RM4bil is not a challenge giventhat 1/3 of this has already been secured by strong takeups at KL EcoCity. 

- Sales were driven by mostly from boutique offices from KLEco City and Fulton Lane in Melbourne apart from the bread and butter projectsfrom Setia Alam, Setia Eco Park and Setia Tropika.  

- Going forward, the group would be launching Setia EcoGlades in Cyberjaya, KL Eco City residential tower 1, 18 Woodsville ' maidenSingapore venture and 11 Brook Residences Penang. 

- We maintain our HOLD rating at this juncture with our fairvalue unchanged at RM3.95/share.

Source: AmeSecurities