RHB Research said the property giant is on track to meet its sales target for 2024 of RM4.4bil.
PETALING JAYA: S P Setia Bhd’s losses from its Battersea Power Station (BPS) venture in London may persist, although it is likely to be offset by the group’s stronger performance in Malaysia.
Analysts further said that BPS, which reported RM125mil in losses for the first half of 2024, may continue to post poor results in subsequent quarters until the British office market improves.
The BPS project is a joint-venture (JV) between S P Setia, Sime Darby Property Bhd
and the Employees Provident Fund (EPF).
In 2012, the tripartite venture acquired London’s iconic BPS for £400mil. S P Setia and Sime Darby Property each hold a 40% stake in the JV, with the EPF owning the balance.
The JV’s agreement to sell an office tower in Battersea Power Station, which was newly completed in March 2024, included some income guarantee for a period of five years.
However, due to soft market conditions and the resulting low occupancy rates, the JV had to record a total loss of RM125mil.
This was also partially attributed to higher interest rates in the United Kingdom which raised the project’s interest payments.
Kenanga Research said it remains “less optimistic” on S P Setia as the BPS project fell deeper into the red.
“While we had projected S P Setia’s Battersea JV to contribute losses of RM20mil per quarter, the completion and handover of a certain office tower there had triggered profit guarantee obligations from S P Setia.
“This dragged its second quarter of 2024 reporting to RM100mil in losses.
“That said, the group highlighted that a quarterly assessment would be conducted with the eventual rentals to be generated from these towers to minimise its obligations going forward,” it said.
Hong Leong Investment Bank (HLIB) Research said the losses from BPS were “wider-than-expected”.
“Due to the challenging office market in the United Kingdom, we anticipate that BPS may take a longer time to secure tenants for its office towers resulting in it to continue incurring losses as a result of the rental income guarantee provision.
“Factoring this, we lower our forecasts for the financial year 2024 and 2025 (FY24 to FY25) by 14% and 8.1% while leaving our FY26 forecast unchanged.”
Nevertheless, HLIB Research has maintained a “buy” call on S P Setia, although the target price was cut to RM1.80 per share.
It remains confident that the group’s overall performance will be well-supported by the robust recovery in Malaysia’s property market.
“The improving market conditions have enabled the group to successfully monetise and activate its assets, as demonstrated by recent land sales secured at attractive margins.
“Moreover, the group is strategically diversifying its growth avenues by actively expanding into the industrial segment, which is expected to drive further growth.
“Additionally, the group’s ongoing efforts in cost reduction through de-gearing and cost rationalisation exercise are commendable,” it said.
Meanwhile, TA Research noted that S P Setia is actively pursuing opportunities for their parcels of land earmarked for industrial park development, particularly in Setia Alam and the Southern region, to capitalise on the rising market demand for industrial development.
“Additionally, the upcoming 307-acre managed industrial park in Tanjung Kupang, Johor, may include data centres, as the group is currently in discussions with several data centre operators,” it added.
In a separate note, RHB Research said the property giant is on track to meet its sales target for 2024 of RM4.4bil.
“We raise FY24 earnings by 15% to reflect the land disposal gains, and FY25 to FY26 earnings by 2%,” stated RHB Research, which has a “buy” call on the stock.
