S P Setia expects higher earnings

Property developer S P Setia Bhd, is expected to see another lumpy gain in the second half of this year when it hands over the second block of its Australian project.

Its second-quarter net profit was markedly higher at RM227.20mil, compared with RM74.27mil a year earlier due to the handover of its first residential block in Fulton Lane, Melbourne.

Its Australian project is recognised on a completion basis, and Fulton Lane’s margin pulled up the overall group profit before tax margin, according to Kenanga Research.

Second-quarter revenue came in at RM1.63bil, compared with RM952.35mil a year ago. The group achieved sales totalling RM774mil during the second quarter with sales for seven months ending May totalling RM2bil. The group will be changing its financial from October to December this year.

On a six month basis to April 30, S P Setia’s net profit was RM328.51mil, with revenue coming in at RM2.56bil, compared with RM171.05mil and 1.67bil respectively a year ago.

An interim dividend of 4 sen was recommended.

The company has trimmed its financial year 2015 (FY15) sales target from RM4.6bil by 13% to RM4bil even though there is an additional two months in the current year.

Kenanga Research raised its FY15 core-earnings estimate by 12% but tweaked its FY16 estimate lower by 1%.

Said Kenanga Research: “Although we have trimmed FY15E sales to RM4bil, the main project affected is Battersea whose recognition is on completion, that is, there is no impact to FY15-16 earnings’ estimate. The main reason for our earnings adjustment is the change in the financial year estimate.”

S P Setia’s unbilled sales of RM11bil provided more than two years’ visibility, Kenanga said.

CIMB Research expects second-half results to be “stronger” than the first with the completion and handover of Fulton Lane’s second block with “softer-than-expected demand” for Battersea London project.

“Of the RM1.79bil in first half year sales, 47% came from Battersea ... while 49% was from Malaysia. Another 4% of sales came from Singapore, Australia, and Vietnam combined,” it said in its research notes.

On the takeover of S P Setia by the property arm of Sime Darby group, CIMB analyst Terence Wong said the lacklustre state of the sector and the poor appetite for property stocks could make it difficult to execute property merger and acquisitions this year.

Public Investment Bank said it continued to “favour” S P Setia for its “sizable and well-located landbank”. - By The Star