Thursday 28 Mar 2024
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KUALA LUMPUR (July 10): Hong Leong Investment Bank (HLIB) Research lowered its target price for S P Setia Bhd to 87 sen from RM1 previously while maintaining its “hold” rating for the property developer due to downside risks towards sales and gross development value (GDV) launch figures.

“With the ongoing economic impact of Covid-19, sales activity remains challenging as some have started withdrawing their previous bookings. Nonetheless, the sales target of RM3.8 billion is maintained for now and any changes will only be reflected during the forthcoming results release (2QFY20 results targeted for mid-August),” said HLIB Research analyst Andrew Lim Ken-Wern in a note today.

“Management now targets to launch products worth closer to RM3.3 billion (from RM4.4 billion set previously), depending on the market’s appetite as management will be monitoring the take-up in the upcoming launches.

“Given that only RM478 million was launched in 1QFY20 and minimal in 2QFY20, we believe the actual FY20 launches to potentially register below its target,” he added.

“Focus will continue to be placed on clearing completed inventories with bigger discounts to be given as seen in the ongoing Setia NOW Campaign which is giving rebates of up to 48% on over 1,600 homes, varying from product to product (achieved around 10% sales so far)," he said.

Lim added that FY20 will experience margin compressions given the challenging operating environment with increased discounts provided. Completed inventories stand at around RM1.4 billion whereby six completed projects, most high-rise types, accounted for over 60% of the inventories.

“As the UK economy was also hit by Covid-19, combined take-up rates for the Phase 2 and 3a now hover around the 70% range (from 91% and 71%, respectively as of FY19) with buyers withdrawing their bookings.

“Management has yet to confirm any delays in handovers of the projects and maintain its target for now. We note that the construction progress is ongoing at around 75% with social distancing measures in place,” he said, adding that Phase 2 is expected to be delivered in 2QFY21 and Phase 3a in 3QFY21.

“We lower our FY20/21/22 forecasts by -28.5%/-17.3%/-7.3%, respectively, as we impute lower progressive billings recognition and margin assumptions amidst the challenging operating environment,” he said.

HLIB Research maintains its “hold” rating with a lower target price of 87 sen and a higher discount at 80% (from 75%) to revalued net asset value (RNAV) of RM4.33 to reflect downside risk towards sales and GDV launch figures given the company’s high base targets, he said.

“Nonetheless, we are hopeful that FY20 will be a bottom year as both FY21 and FY22 will be supported by the recognition of foreign projects. Our discount rate will be revisited upon signs of the recovery in sentiments,” he concluded.

At 11.03am, shares of S P Setia remained unchanged at 84.5 sen, valuing the developer at RM3.43 billion. Year-to-date, the counter has fallen 47.19%, close to half of its value, from RM1.60.

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