PETALING JAYA: S P Setia Bhd’s land monetisation strategy has driven the group’s earnings growth and further improved on its net gearing position, say analysts.
The property group posted core net profit at RM84mil in the third quarter of financial year 2024 (3Q24), up 92% year-on-year largely due to higher profits from land sales, which offset losses from the based Battersea Power Station (BPS) joint-venture project in Britain and lower contributions from its Australian operations.
RHB Research said in a report, with the land sales, the group should be on track to meet its RM4.4bil sales target given an estimated RM1.97bil worth of new projects to be launched by year-end.
“We expect to see another land sale in 4Q24 in Taman Pelangi, Johor, with an estimated net profit of RM57mil.
“Beyond that, we think earnings moving forward will be more normalised, driven by its township development and industrial expansion,” the research house noted.
It added that S P Setia had indicated that it was confident about the Australian market, having recently launched the Atlas Melbourne mixed development project with an estimated gross development value (GDV) of RM2.7bil.
The group also rolled out exclusive previews of Setia Federal Hill, with Phase 1 of the new project with a GDV of RM1.4bil slated to be launched in early 2025, added RHB Research.
The research house, which kept a “buy” call on the stock at a target price of RM1.72, also raised its financial year 2024 (FY24) earnings forecast for S P Setia by 8% to reflect the land disposal gains.
Maybank Investment Bank Research (Maybank IB Research) said SP Setia’s 3Q24 results were in line with its forecasts as it expects earnings to normalise in 4Q24 in the absence of land sales.
S P Setia secured property sales of RM3.2bil in the nine months ended September 2024, including RM731mil worth of land in Johor, achieving 72% of its FY24 sales goal.
“Excluding the land sales, property sales were at RM2.5bil, accounting for 61% of our RM4bil sales assumption for FY24,” the research house added.
Furthermore, sales should pick up strongly in 4Q24 with RM2bil worth of new launches, including its Atlas Melbourne project that has already been 30% sold.
Maybank IB Research has a “buy” call on the stock with an unchanged target price at RM1.64.
According to Hong Leong Investment Bank Research (HLIB Research), S P Setia has made considerable progress in improving its balance sheet, with net gearing, including redeemable convertible preference shares (RCPS), in 3Q24 declining to 48.4% from 55.2% in 2Q24.
“We expect a further reduction in net gearing arising from more land sales ahead,” the research house said in a note to clients.
The group also recently embarked on a cost-rationalisation exercise, which should see lower administrative expenses and better cost efficiencies moving forward.
“In 4Q24, the group is anticipated to continue recognising land sale gains from Taman Pelangi, Johor with estimated net profit of RM57mil.
“Additionally, we are anticipating narrowing losses from BPS as the current quarter was impacted by cost overruns from cost finalisation for the completed project,” HLIB Research said.
S P Setia also recently ventured into the industrial segment with the recent launch of Setia Alaman Industrial Park in Selangor and upcoming Tanjung Kupang Industrial Park in Johor, which provides the group with a new level of growth, said the research house.
HLIB Research’s forecasts on S P Setia remained unchanged. It also maintained a “buy” call on the stock with an unchanged target price of RM1.80.
