S P Setia Bhd
(Dec 17, RM3.24)
Maintain “neutral” with a target price (TP) of RM3.34: S P Setia’s financial year 2014 (FY14) net earnings of RM406 million came in line with our full-year forecast and that of the consensus.

Year-to-date (YTD) net earnings improved 6%. However, overall earnings before interests and tax (Ebit) margins were down slightly to 23% from 24% year-on-year (y-o-y), mainly due to the mismatch between initial expenses incurred and revenue recognition in the United Kingdom and Australia, where revenue is recognised at a point in time when the construction of the assets is completed and handed over to the customers.

This was further compounded by the impact of the goods and services tax (GST), which the group charged out RM6.8 million in the fourth quarter of FY14 (4QFY14) which was recognised progressively since 2QFY14. The total impact for FY14 was approximately 10% of net earnings.

S P Setia’s 4Q earnings went up 27% quarter-on-quarter (q-o-q) but were flat y-o-y, while the YTD net earnings eased 3%.

Going forward, management has set a RM4.6 billion sales target for FY15 with the key focus on affordable houses, mostly priced less than RM1 million.

The group has declared a final dividend of 5.7 sen per share during the quarter, and an interim dividend of 4 sen per share totalling 9.7 sen per share for the year. This translates into a decent yield of 3%.

We maintain our FY15 forecast and our TP at RM3.34 based on a blended price-earnings and price-to-book value of 15 times and 1.3 times, respectively. Maintain “neutral”. — BIMB Securities Research, Dec 17

This article first appeared in The Edge Financial Daily, on December 18, 2014