March 21, 2014 SP Setia (SPSB MK) Share Price: MYR2.95 MCap (USD): 2.2B Malaysia Target Price: MYR3.36(+13.5%) ADTV (USD): 0.8M Property HOLD (unchanged) Results Review Results Key Data Below expectations Shariah status NO . 1QFY10/14 net profit of MYR96.8m (+4% YoY) below 52w high/low (MYR) 3.99/2.70 expectations. Free float (%) 20.1 . Cutting our FY14/15/16 earnings forecasts by -9%/-9%/-10%. Issued shares (m) 2,459 Market capitalization MYR7.3B . Maintain HOLD with a reduced TP of MYR3.36 (-2 sen; on Major shareholders: unchanged 0.7x P/RNAV). Yayasan Pelaburan B 49.0% What’s New Skim Amanah Saham B 15.1% Kumpulan Wang Per 6.7% Excluding an estimated net gain of MYR29m from one-off EPF 6.3% COMPANY RESEARCH | RESEARCH COMPANY commercial land sales at Setia Alam, SPSB’s 1QFY10/14 core net profit of MYR68m (-27% YoY, -47% QoQ) only accounted for 13-14% Share Price Performance of our and consensus full-year estimates. 4.50 1,950 4.00 1,875 The earnings shortfall was attributed to higher-than-expected 3.50 marketing and administrative expenses as well as higher 3.00 1,800 2.50 construction costs on labour shortage. As a result, pretax margin 1,725 2.00 (ex-land sales) declined by 4ppt YoY and 5ppt QoQ. 1.50 1,650 1.00 1,575 What’s Our View 0.50 0.00 1,500 4MFY10/14 locked-in new property sales were MYR1.8b (80% local: Mar-12 Sep-12 Mar-13 Sep-13 20% overseas), on track to meet the just-released sales target of SPSB MK Equity MYR5b for FY10/14 (-39% YoY). Township projects such as Setia Eco FBMKLCI Index Hill and Parque Melbourne were the key sales drivers, contributing 1 Mth 3 Mth 12 Mth 35% and 12.5% to 4MFY10/14 sales. Absolute (%) na (2.3) (11.7) The near-term earnings outlook will be backed by unbilled sales of Relative to country (%) 0.4 (0.7) (23.1) MYR10.5b as at end-Jan 2014 (2.7x of our revenue FY14 forecast; Maybank vs Market 30% from UK and Australia projects whose profits can only be Positive Neutral Negative recognized upon completion). Market Recs 4 16 3 We cut our earnings forecasts to factor in higher administrative Maybank Consensus % +/- and marketing as well as construction costs (-2ppt to -3ppt cut in Target Price (MYR) 3.36 3.18 5.8 project margins). Our RNAV, is however, largely unchanged at 2014 Net Profit 481 521 (7.6) MYR4.79 (-4sen) after factoring in the MYR29m disposal gain. (MYR m) 2015 Net Profit 613 674 (9.0) (MYR m) FYE Oct (MYR m) FY12A FY13A FY14F FY15F FY16F Source: Bloomberg; Maybank Revenue 2,526.6 3,060.5 4,073.2 5,232.2 5,811.7 EBITDA 601.0 631.8 757.9 961.0 1,096.3 Core net profit 372.9 417.9 481.3 613.2 690.6 Core EPS (sen) 18.9 17.8 19.6 24.9 28.1 Core EPS growth (%) 16.4 (5.7) 9.9 27.4 12.6 Net DPS (sen) 10.5 10.6 11.7 15.0 16.9 BVPS (MYR) 2.05 2.36 2.33 2.43 2.54 Core P/E (x) 15.2 16.2 14.7 11.5 10.3 EV/EBITDA (x) 23.1 18.9 10.6 13.1 14.2 Net dividend yield (%) 3.6 3.7 4.1 5.2 5.9 P/BV (x) 1.4 1.2 1.2 1.2 1.1 Net debt/equity (%) 57.8 41.4 58.6 58.2 57.2 Wong Wei Sum, CFA ROAE (%) 9.7 7.6 8.4 10.3 11.1 (603) 2297 8679 ROAA (%) 4.2 3.4 3.6 4.2 4.6 Chg in net profit (%) - - (9.0) (8.6) (10.2) [email protected] SEE PAGE 6 FOR IMPORTANTDISCLOSURES AND ANALYST CERTIFICATIONS PP16832/01/2013 (031128) SP Setia Table 1: Quarterly summary table - SP Setia Quarterly FY Oct (MYR m) 1Q14 1Q13 % YoY 4Q13 % QoQ Comments Revenue 721.6 734.9 (1.8) 900.2 (19.8) 1QFY10/14: QoQ decline was due to seasonal factors. SPSB usually performs better in 2H of its financial year. SPSB has raked in MYR1.8b in property sales in 4MFY10/14 (37% of its MYR5b sales target for FY10/14) whilst unbilled sales were MYR10.5b as at end-Jan 2014 (2.7x of our FY10/14 revenue forecast). EBIT 169.8 150.5 12.8 199.1 (14.7) Finance costs (13.9) (11.9) 16.7 (19.3) (28.1) Net gearing improved to 0.29x, from 0.41x in end-Oct 2013. Associate (8.8) (2.9) >+100 (0.2) >+100 Exceptional item 39.6 0.0 NA 0.0 NA Gain from the disposal of commercial land at Setia Alam. Profit before tax 147.2 135.7 8.4 179.6 (18.1) 1QFY10/14: Despite the YoY decline at revenue, PBT grew by 8.4% supported by the MYR39.6m exceptional gain. Taxation (30.2) (30.0) 0.6 (52.2) (42.2) Minority interest (20.2) (12.6) 60.9 (0.1) >+100 Net profit 96.8 93.2 3.9 127.3 (24.0) Below expectations; excluding the estimated disposal gain of MYR29m (net of tax), 1QFY10/14 core net profit (-27% YoY, - 47% QoQ) only accounted for 13-14% of our and consensus full- year estimates. NDPS (sen) 0.0 0.0 NA 7.0 NA 1Q14 1Q13 +/- ppt 4Q13 +/- ppt EBIT margin (%) 23.5 20.5 3.1 22.1 1.4 Tax rate (%) 20.5 22.1 (1.6) 29.1 (8.6) Sources: Company, Maybank KE Foreign shareholding trending down since May’ 13 (%) 14 12.5 11.7 11.6 11.4 12 10.6 10.6 10.6 9.5 10 9.2 9.0 8.8 8.8 8.5 8 6 4 2.1 2 0 Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Jan Feb 13 13 13 13 13 13 13 13 13 13 13 13 14 14 Source: Company SPSB’s 4MFY4/14 sales were MYR1.8b (-9% YoY) MYR m 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 12/10 03/11 06/11 09/11 12/11 03/12 06/12 09/12 12/12 03/13 06/13 09/13 12/13 Source: Company March 21, 2014 2 SP Setia Tan Sri Liew will continue to oversee UK and China projects TS Liew has agreed to stay on as the chairman of the Battersea Project Holding Co Ltd (for the Battersea Power Station project in London) and managing director of Qinzhou Development (M) consortium S/B (for the Qinzhou Industrial Park project in China) until Sep 2015 to ensure the smooth and successful implementation of these international projects. SPSB's Fully Diluted RNAV Remaining MV BV Surplus landbank Landbank Stake acres (MYRm) (MYRm) (MYRm) Malaysia Southern region Bukit Indah 100% 100.5 131.3 24.1 107.26 Setia Indah 100% 10.3 9.0 1.3 7.69 Setia Cascadia 100% 138.7 120.8 90.6 30.21 Setia Tropika 100% 156.5 136.3 48.1 88.28 Setia Eco Gardens 70% 323 422.1 77.4 241.30 Setia Business Park II 100% 107.7 93.8 51.6 42.22 Central region Setia Eco Glades @ Cyberjaya 70% 205 357.2 321.5 25.00 Setia Eco Hills 100% 437 381.3 381.3 0.00 Semenyih land 100% 1,011 396.2 396.2 0.00 Setia Alam 100% 712 2,233.1 108.2 2,124.82 Setia Eco Park 50% 314.6 986.7 109.6 438.53 Setia Ngle & Nexus 2 70% 10 37.0 24.0 9.15 Kenny Hills Grande 70% 6.2 98.6 73.8 17.33 Northern region Setia Pearl 100% 21 75.5 26.2 49.31 Setia Greens 100% 12 43.1 28.2 14.90 Sub-total: 5,522.0 1,762.0 3,196.0 DCF (discount factor: 13-14%) NPV Malaysia Stake acres (MYRm) Setia Sky Residences, Klang Valley 70% 0 17.1 Setia City, Klang Valley 100% 114 570.4 KL Eco City, Klang Valley 100% 9 547.2 Setia Federal Hill at Bangsar, Klang Valley 50% 53 198.9 Seputeh Land, Klang Valley 100% 5 41.6 Brook Residences, Penang 100% 0 2.4 Setia V Residences, Penang 100% 0 17.9 Tanjung Bungah Penang 100% 35 122.3 Aeropod - Tg Aru, Sabah 70% 42 45.4 Setia Sky 88, Johor Bahru 100% 1 34.9 British High Comm 100% 3 75.0 Templer Park 100% 195 91.5 Singapore 18 Woodsville 100% 0 13.2 Eco Sanctuary, Chestnut Avenue 100% 0 90.6 Australia Fulton Lane 100% 0 107.5 St Kilda 100% 2 62.1 United Kingdom Battersea Power Station 40% 34 997.6 Sub-total: 3,035.6 Grand total 6,231.6 Disposal gains 29.0 Shareholders fund - 2013 5,525.5 RNAV 11,786.1 Enlarged share capital (m shares) 2,458.7 FD RNAV (MYR/share) 4.79 Target price (MYR/share) (30% discount to RNAV) 3.36 Source: Company, Maybank KE March 21, 2014 3 SP Setia INCOME STATEMENT (MYR m) BALANCE SHEET (MYR m) FY Oct 2013A 2014F 2015F 2016F FY Oct 2013A 2014F 2015F 2016F Revenue 3,060.5 4,073.2 5,232.2 5,811.7 Fixed Assets 1,134.9 1,134.9 1,134.9 1,134.9 EBITDA 631.8 757.9 961.0 1,096.3 Other LT Assets 5,196.1 4,832.6 4,320.1 3,970.4 Depreciation & Amortisation 4.2 6.7 11.8 16.6 Cash/ST Investments 2,243.2 1,884.1 2,104.1 2,005.6 Operating Profit (EBIT) 627.6 751.2 949.2 1,079.7 Other Current Assets 3,867.5 5,371.7 6,885.3 7,927.5 Interest (Exp)/Inc (57.1) (42.9) (45.3) (45.7) Total Assets 12,441.8 13,223.3 14,444.4 15,038.5 Associates (0.2) 0.0 0.0 0.0 One-offs 0.0 0.0 0.0 0.0 ST Debt 614.4 614.4 614.4 614.4 Pre-Tax Profit 570.3 708.3 904.0 1,033.9 Other Current Liabilities 2,382.6 2,264.7 2,898.4 3,215.3 Tax (151.1) (177.1) (226.0) (258.5) LT Debt 3,915.1 4,621.9 4,963.1 4,963.1 Minority Interest (1.4) (49.9) (64.8) (84.8) Other LT Liabilities 5.0 5.0 6.0 7.0 Net Profit 417.9 481.3 613.2 690.6 Minority Interest (0.8) (0.8) (0.8) (0.8) Recurring Net Profit 417.9 481.3 613.2 690.6 Shareholders' Equity 5,525.5 5,718.1 5,963.3 6,239.6 Total Liabilities-Capital 12,441.8 13,223.3 14,444.4 15,038.5 Revenue Growth % 21.1 33.1 28.5 11.1 EBITDA Growth (%) 5.1 20.0 26.8 14.1 Share Capital (m) 2,345.0 2,458.7 2,458.7 2,458.7 EBIT Growth (%) 7.7 19.7 26.4 13.7 Gross Debt/(Cash) 4,529.5 5,236.4 5,577.5 5,577.5 Net Profit Growth (%) 6.1 15.2 27.4 12.6 Net Debt/(Cash) 2,286.3 3,352.3 3,473.5 3,571.9 Recurring Net Profit Growth 12.1 15.2 27.4 12.6 Working Capital 3,113.7 4,376.6 5,476.6 6,103.4 Tax(%) Rate % 25.0 25.0 25.0 25.0 Gross gearing % 82.0 91.6 93.5 89.4 CASH FLOW (MYR m) RATES & RATIOS FY Oct 2013A 2014F 2015F 2016F FY Oct 2013A 2014F 2015F 2016F Profit before taxation 570.3 708.3 904.0 1,033.9 EBITDA Margin % 20.6 18.6 18.4 18.9 Depreciation 0.0 6.7 11.8 16.6 Pretax margin (%) 18.6 17.4 17.3 17.8 Net interest (136.6) (42.9) (45.3) (45.7) Net Profit Margin % 13.7 11.8 11.7 11.9 receipts/(payments) Working capital change 455.3 0.0 0.0 0.0 ROE % 7.6 8.4 10.3 11.1 Cash tax paid (244.4) (177.1) (226.0) (258.5) ROA % 3.4 3.6 4.2 4.6 Others (incl'd exceptional) (4.9) (4.9) (4.9) (4.9) Net Margin Ex.