SP Setia - 9M09 sales exceeds FY09 target

Price: RM4.52
Target Price: RM4.25
Recommendation: TRADING SELL

· 9M09 Sales of RM1.25b exceeds FY09 sales target by 14%, but July 2009 experience MoM decline. 9M09 sales values grew 8% YoY to RM1.25b. 3Q09 sales value grew 39% QoQ to RM583m, underpinned by SP Setia’s (SP) 5/95 home loan scheme.
· July 2009 sales however fell 23% MoM to RM217m. Klang Valley townships’ July 2009 sales value fell 40% MoM, mainly due to Setia Eco Park. We believe it is related to SP Setia ceasing promotions on 19 July 2009, whilst other Klang Valley developers continue with theirs. Commercial’s (Setia Walk) July 2009 sales fell 78% MoM to RM12m.

· Setia Sky Residences July 2009 sales doubles MoM to RM146m. Recall that SP did a preview launch mid 2008 and raked-in 60%-65% bookings rate for first phase. Hence, high initial take-up rates are the result of these registered sales converted into SPA sales.

· July 2009 sales from Penang and Johor Bahru (JB) rose on the back on new launches. Penang projects grew 122% MoM to RM20m, whilst JB townships sales of RM48 was a 23% MoM increase. This was due to 1) Setia Vista’s first and official launch of RM100m in July 2009 (preview launches were done before) 2) 288 units (+174% MoM) launched in JB townships.

· Eco Lakes, Vietnam achieves “81% take-ups” but is not reflected in 9M09 sales release (see below for further explanation). SP released another 129 units for sale, on top of the initial 128 units, due to overwhelming responses. Total GDV launched was c.RM70m. Another c.USD11m (c.RM39m; USD1=RM3.56) worth of semi-detaches and villas (58 units) are up for the next preview launch. Earthworks have begun.

· Maintain FY09-10E net profit of RM155m-RM160m. We will revise earnings, (leaning to an upward bias) when we get a better feel of future sales, using the next 2 months sales performances. Nonetheless, unbilled sales of RM2.15b provide nearly 2 years earnings visibility, a sharp improvement from 1Q09.

· Trading SELL maintained with unchanged fair value of RM4.25. We still think SP is overvalued as it is trading at 29x FY10E PER versus forward averages of 1) 11x peers 2) 14x markets 3) historical 11x. It is also steep versus 22x forward PER averages in 2007’s bull run year. Similar 2.2x PBV is trading at premiums to its 1.1x peer averages and 1.2x historical averages. More substantial short term re-rating catalysts lies with finalization of the China project and more Vietnam projects.