RESULTS UPDATE

TA Securities Thursday, 18 Sept 2014 A Member of the TA Group FBMKLCI: 1,843.78

MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 , TEL: +603 -20721277 / FAX: +603 -20325048 Sector: Property

SP Setia Berhad TP: RM 3. 08 (-7.0%) RM5.0bn sales target to be dependent on Battersea Last Traded: RM3.31

THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* Sell

Thiam Chiann Wen Tel: +603-2167 9615 [email protected] www.taonline.com.my

Review Share Information  SP Setia’s 9MFY14 net profit of RM274.4mn came in below expectations, Bloomberg Code SPSB MK Stock Code 8664 making up 67% of ours and 59% of street’s FY14 estimates. The variance Listing Main Market was largely due to slower-than-expected progress billing and inclusion of Share Cap (mn) 2538.1 GST impact on construction costs for on-going projects, which span over the Market Cap (RMmn) 8401.1 Apr-15 implementation date. Par Value 0.75 52-wk Hi/Lo (RM) 3.65/2.70 12-mth Avg Daily Vol ('000 shrs) 1203.1

 The group’s 9MFY14 revenue and PBT grew 12% YoY and 14% YoY Estimated Free Float (%) 20.1 respectively to RM2.6bn and RM500mn, mainly driven by higher revenue Beta 0.65 recognition from property development as a results of higher overall group Major Shareholders (%) sales achieved since FY12 – see Figure 1 . However, YTD net profit dipped PNB (64.0) KWAP (8.7) 5% YoY to RM274mn, mainly due to higher taxes and profit distribution to EPF (6.1) the holders of perpetual bonds and non-controlling interests, as well as the recognition of GST impact and long term incentive plan (LTIP) expenses. According to management, the group recognized LTIP expenses and GST Forecast Revision FY14 FY15 provision which amounted to RM41mn and RM32.6mn respectively in Forecast Revision (%) 0.0 0.0 9MFY14. Excluding these, YTD net profit would have been grown by 13% Net profit (RMm) 411.8 554.1 and in line with its revenue growth. Consensus 464.5 624.3 TA's / Consensus (%) 88.7 88.8 Previous Rating Sell (Maintained) Figure 1: Sales Performance Financial Indicators FY14 FY15 Net Debt / Equity (%) 51.6 41.5 FCPS (sen) (29.8) 30.7 Price / CFPS (x) (11.1) 10.8 ROA (%) 3.8 4.9 NTA/Share (RM) 2.3 2.4 Price/NTA (x) 1.5 1.4

Scorecard % of FY vs TA 67.0 Below vs Consensus 59.0 Below

Share Performance (%) Price Change SP Setia FBM KLCI Source: SP Setia, TA Research 1 mth (6.2) (1.0)

3 mth 12.6 (1.7)  On a QoQ basis, 3QFY14 PBT grew 13% to RM188mn, largely due a sale of a 6 mth 11.1 1.3 piece of land in Setia Alam for the development of 1NIH Complex. Excluding 12 mth 1.5 4.1 the disposal gain which amounted to RM41mn, 3QFY14 PBT would have seen a decline of 11% QoQ. (12-Mth) Share Price relative to the FBM KLCI

Forecast  No change to our FY14-16 earnings, pending our meeting with management.

Outlook  SP Setia recorded new sales of RM3.8bn in 10MFY14, which were 39% lower than the same period last year – see Table 1 . The decline in sales was largely due to limited overseas project launches and weak sales performance in . The group’s total unbilled sales were relatively stable Source: Bloomberg at RM10.9bn, which ensures more than 2 years’ earnings visibility. Page 1 of 5 TA Securities A Member of the TA Group 18-Sep-14

 In Malaysia, Setia EcoHill @ Semenyih was the star performer, recording new sales of RM780mn (or 20% of total sales) from the sale of 1179 units out of 1230 unit launched (96% take up). On the overseas front, Battersea remains the key contributor to sales, contributing RM754mn towards property sales in 9MFY14.

 The group’s RM5bn sales target for FY14 is expected to be underpinned by Battersea projects in London and new phases within its on-going developments in Malaysia, which includes a new residential tower in KL Eco City. Meanwhile, Phase 3 of Battersea project, featuring 1,200 residential units, 200-room hotel, 350,000 sq. ft. retail and F&B space, 15,000 sq. ft. library and leisure space (GDV: £2.0bn), is slated for launch in Oct-14.

 Separately, the group announced that Dato’ Voon Tin Yow has tendered his resignation as the acting president and chief executive officer (CEO) of SP Setia and will leave his position on 1 Jan 2015. The Board also announced the election of Dato’ Khor Chap Jen, the present acting deputy president, to assume to role of acting president and CEO of the company effective 1 Jan 2015. Dato’ Khor will be supported by Datuk Wong Tuck Wai, who is presently an executive vice president, as his acting deputy president and chief operating officer. We are surprised by the earlier-than-expected departure of Dato’ Voon before his one-year management contract expires in 30 Apr 2015. In our opinion, frequent changes in leadership could hamper the development of SP Setia’s strategy direction, which may in turn affect the group’s project execution and profit margin.

Valuation  We maintain our Sell recommendation on SP Setia with an unchanged target price at RM3.08/share, based on 13x CY15 EPS. Our target PER of 13x is based on its 3-year historical -2 standard deviation.

Earnings Summary (RMmn) YE Oct 31 FY12 FY13 FY14F FY15F FY16F Revenue 2526.6 3060.5 4549.4 6351.6 5635.0 EBITDA 599.3 661.4 861.8 1123.5 1140.6 EBITDA margin (%) 23.7 21.6 18.9 17.7 20.2 Pretax profit 567.5 570.3 744.2 970.3 1103.9 Net profit 393.8 417.9 411.8 554.1 722.6 Net profit -adj 393.8 417.9 411.8 554.1 722.6 EPS 20.5 17.0 16.7 22.5 29.4 EPS - adj 20.5 17.0 16.7 22.5 29.4 EPS Growth (Core) (%) 17.4 (17.1) (1.5) 34.6 30.4 PER 14.4 17.4 17.6 13.1 10.0 GDPS 14.0 11.0 11.0 12.0 14.7 Div Yield (%) 4.7 3.7 3.7 4.1 5.0 EV/EBITDA 14.0 14.1 12.0 8.8 8.6 ROE (%) 10.5 7.6 7.3 9.4 11.6

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3Q14 Results Analysis (RMmn) YE 31 Oct 3Q13 2Q14 3Q14 QOQ% YOY% 9MFY13 9MFY14 YOY% Turnover 761.5 952.4 902.7 (5.2) 18.5 2295.5 2576.6 12.2 - Property 763.9 891.2 837.0 (6.1) 9.6 2164.1 2398.9 10.9 - Construction 19.5 38.8 40.6 4.8 108.7 64.8 105.0 62.1 - Others 23.5 22.3 25.0 12.0 6.5 66.6 72.7 9.1 Gross Profit 243.3 271.4 273.5 0.8 12.4 713.3 749.9 5.1

EBIT 156.5 196.7 214.5 9.1 37.1 490.9 581.0 18.3 Net Int Inc/ (exp) (12.0) (16.2) (14.0) (13.6) 16.1 (35.8) (44.0) 22.8 Associates 0.0 (15.1) (13.0) (14.4) nm (16.2) (36.9) >-100 EI 0.0 0.0 0.0 nm nm 0.0 0.0 nm Pretax 144.5 165.4 187.6 13.4 29.9 438.9 500.1 14.0 - Property 151.6 156.4 179.0 14.4 18.1 423.9 472.1 11.4 - Construction (0.9) (1.6) (6.0) >-100 >-100 (2.1) (8.3) >-100 - Others 7.4 10.5 14.6 39.0 98.3 17.1 36.4 >100 Taxation (40.3) (47.0) (61.2) 30.2 52.0 (109.8) (138.3) 26.0 Holders of Perpetual Bond 0.0 (8.8) (9.1) 3.4 nm 0.0 (22.9) nm Non Controlling Interest (2.3) (35.3) (14.0) (60.4) 503.5 (35.8) (64.5) 80.0 Reported Net Profit 101.9 74.3 103.3 39.1 1.4 288.7 274.4 (5.0) Core Net Profit 101.9 74.3 103.3 39.1 1.4 288.7 274.4 (5.0) Core EPS (sen) 4.1 3.0 4.1 36.4 (0.5) 12.6 11.1 (12.1) GDPS (sen) 0.0 4.0 0.0 (100.0) nm 4.0 4.0 0.0 ppt ppt ppt EBIT Margin (%) 20.5 20.7 23.8 3.1 3.2 21.4 22.5 1.2 Pretax Margin (%) 19.0 17.4 20.8 3.4 1.8 19.1 19.4 0.3 Net Margin (%) 13.4 7.8 11.4 3.6 (1.9) 12.6 10.6 (1.9)

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TA Securities A Member of the TA Group 18-Sep-14

Table 1: Sales Breakdown by Project 10MFY13 10MFY14 Value per Value per Sales Value Launched Sales Value Launched Sales Value Sold Units Unit (RM Sold Units Unit (RM Growth (YoY Units (RMmn) Units (RMmn) '000) '000) %) Setia Alam 2088.0 2075.0 760.0 366.3 1509.0 1021.0 647.0 633.7 (14.9) Setia EcoHill 224.0 223.0 140.0 627.8 1230.0 1179.0 780.0 661.6 457.1 Setia Eco Park 0.0 32.0 109.0 3406.3 28.0 53.0 136.0 2566.0 24.8 Setia Eco Glades 282.0 251.0 461.0 1836.7 91.0 65.0 101.0 1553.8 (78.1) Setia Sky Residences 291.0 121.0 131.0 1082.6 0.0 136.0 152.0 1117.6 16.0 Setia Walk, Puchong 0.0 36.0 30.0 833.3 0.0 6.0 5.0 833.3 (83.3) KL Eco City 212.0 276.0 271.0 981.9 0.0 17.0 -34.0 nm (112.5) Setia Putrajaya 440.0 358.0 152.0 424.6 257.0 173.0 87.0 502.9 (42.8) Total Central Region 3537.0 3372.0 2054.0 609.1 3115.0 2650.0 1874.0 707.2 (8.8) Bukit Indah, Johor 461.0 525.0 339.0 645.7 174.0 243.0 161.0 662.6 (52.5) Setia Indah, Johor 12.0 144.0 76.0 527.8 0.0 35.0 15.0 428.6 (80.3) Setia Tropika, Johor 128.0 274.0 223.0 813.9 8.0 56.0 70.0 1250.0 (68.6) Setia Eco Gardens, Johor 194.0 424.0 324.0 764.2 263.0 306.0 99.0 323.5 (69.4) Setia Eco Cascadia 0.0 83.0 68.0 819.3 107.0 35.0 54.0 1542.9 (20.6) Setia Business Park II 47.0 36.0 94.0 2611.1 0.0 16.0 25.0 1562.5 (73.4) Setia Sky 88 0.0 206.0 162.0 786.4 150.0 34.0 37.0 1088.2 (77.2) Total Southern Region 842.0 1692.0 1286.0 760.0 702.0 725.0 461.0 635.9 (64.2) Setia Pearl Island, 0.0 93.0 96.0 1032.3 77.0 23.0 25.0 1087.0 (74.0) Setia Vista 0.0 10.0 0.4 42.0 0.0 5.0 1.0 200.0 138.1 Setia Greens 434.0 345.0 218.0 631.9 0.0 20.0 19.0 950.0 (91.3) 11 Brook Residence 0.0 2.0 14.0 7000.0 0.0 1.0 7.0 7000.0 (50.0) Setia V Residences 0.0 0.0 0.0 0.0 72.0 39.0 88.0 2256.4 nm Total Northern Region 434.0 450.0 328.4 729.8 149.0 88.0 140.0 1590.9 (57.4) 80.0 49.0 69.0 1408.2 0.0 50.0 22.0 440.0 (68.1) Total - Malaysia 4893.0 5563.0 3737.4 671.8 3966.0 3513.0 2497.0 710.8 (33.2) Fultone Lane, Melbourne 8.0 221.0 409.0 1850.7 18.0 144.0 261.0 1812.5 (36.2) Parque, Meldourne 0.0 0.0 0.0 0.0 0.0 112.0 223.0 1991.1 nm 18 Woodsville, Singapore 0.0 14.0 53.0 3785.7 0.0 0.0 0.0 nm (100.0) Eco Sanctuary, Singapore 483.0 346.0 824.0 2381.5 0.0 28.0 73.0 2607.1 (91.1) Eco Lake, My Phuoc 0.0 0.0 0.0 0.0 0.0 0.0 0.0 nm nm Eco Xuan, Lai Thieu 0.0 0.0 0.0 0.0 0.0 0.0 0.0 nm nm Battersea. London 346.0 330.0 1247.0 3778.8 102.0 62.0 754.0 12161.3 (39.5) Total oveaseas sales 837.0 911.0 2533.0 2780.5 120.0 346.0 1311.0 3789.0 (48.2) Total 5730 6474 6270.4 968.6 4086 3859 3808.0 986.8 (39.3) Source: SP Setia & TA Research

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Table 2: Unbilled sales as at Aug-14 Project (RM'mn) Sales secured @ 31.5.2014 Progress billings @ 30.4.2013 Future progress biling Setia Alam 5605 4218 1387 Setia EcoHill 919 118 801 Setia Walk 847 785 62 Setia Sky Residences 814 511 303 Putrajaya 1157 1039 118 Setia Eco Park** 1218 1090 128 Setia Eco Glades* 469 97 372 KL Eco City 1798 376 1422 Bukit Indah Johor 3677 3339 338 Setia Tropika Johor 1804 1618 186 Setia Indah Johor 1806 1742 64 Setia Eco Gardens* 804 652 152 Setia Eco Cascadia 428 236 192 Setia Business Park II 237 179 58 Setia Sky 88 305 34 271 Setia Pearl Island 1045 895 150 Setia Vista 137 136 1 Setia Greens 405 202 203 11 Brook Residence 65 20 45 Setia V Residences 205 14 191 Aeropod* 216 22 194 Eco Lakes, Vietnam 62 43 19 Eco Xuan, Vietnam 38 14 24 Fulton Lane, Melbourne 1413 0 1337 Parque Melbourne 667 0 672 18 Woodsville, Singapore 276 115 161 Eco Sanctuuary 911 153 721 Battersea Power Station 2112 0 1375 Total 29440 17648 11791 est. Progress biling May-Aug-14 937 10854 Unbilled sales

Disclaimer The information in this report has been obtained from so urces believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. for TA S ECURITIES HOLDINGS BERHAD (14948-M) (A Participating Organisation of Bursa Malaysia Securities Berhad) Kaladher Govindan – Head of Research

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