SP Setia – 1H09 sales in-line with FY09 sales target

Price: RM3.70
Target Price:RM4.25
Recommendation: BUY

· 1H09’s RM521m SPA sales accounts for 47% of FY09’s RM1.1b sales target. SP Setia (SP) has released its long awaited YTD FY09 SPA sales figures, as at 30/4/09. Townships in both Klang Valley and Johor Bahru (JB) accounted for 83% of 1H09 sales values. No doubt 1H09 sales values fell by 39% YoY, but we are glad that management has rightly guided FY09 sales target and is delivering within expectations. (See below for sales breakdown)

· Setia Eco Park leads the ‘pack’ (25% of 1H09 sales value). The project’s 1H09 sales value and sold units grew 51% and 294% YoY, respectively. Success can be attributed to a combination of 1) the 5/95 promotional scheme, 2) presence of Tenby International School 3) high end bungalow products with reduced built up to obtain a more digestible price tag.

· It is evident that the 5/95 promotional scheme has been well received by the public as it sweetens the deal for the many wanting to buy into SP Setia’s branding. Its JB townships demonstrates this best although the deferred payment scheme package with zero entry costs have been a JB norm for many; JB townships were the only geographic segment to show growth at 9% YoY in 1H09 sales to RM210m (see below).

· Maintaining FY09-10E net profit of RM154.9m and RM159.6m, on the back of RM1.5b unbilled sales (1-1.5 years earnings visibility), potential sales from Eco Lakes, Vietnam (registered c.70% bookings by end March 09 for c.USD10m and not included in unbilled sales and stronger 2H09 performance due to improved sentiment and promotional efforts. Management did not release remaining sales booking figures, but hinted that it is still ‘promising’ with high translation rate to SPA sales.

· Reiterating our BUY recommendation with RM4.25 fair value. We continue to like SP for its ability to adapt to tough market conditions via its strong balance sheet (0.19x net gearing, RM572m cash balance) and diversified earnings. SP is likely to be one of the stronger property outperformers during a sector run, given its market leadership qualities; large market capitalisation of RM3.8b and strong branding amongst local and foreign institutional investors. Potential earnings catalysts, on the back of economic recoveries, are 1) PNB property units’ assets injection or on land basis JV 2) conclusion of the Lend Lease deal on Setia City 3) more land acquisitions 4) KL Eco City.