UOBKH Research said the developer’s de-gearing efforts are bearing fruit.
PETALING JAYA: UOB Kay Hian (UOBKH) Research is optimistic about the prospects of S P Setia Bhd, driven by the latter’s robust industrial sales and resilience in the luxury residential segment.
The research house commented that the developer’s de-gearing efforts are bearing fruit, supported by significant non-core land sales in the past two years.
“With these disposals largely concluded, we believe S P Setia’s management can now refocus on its core operations,” it said.
Notably, in contrast to consensus’ expectations of a net profit decline in 2025, UOBKH Research is forecasting S P Setia to deliver a 6% year-on-year earnings growth, underpinned by unbilled sales of RM3.5bil and higher-margin industrial plot revenue.
Elaborating on the de-gearing initiatives, the research unit revealed that after the latest RM517mil disposal of a six-acre parcel in Taman Pelangi in December, S P Setia’s non-core land sales amounted to RM888mil in 2024 from RM836mil in 2023.
It noted that there remains RM453mil of unrecognised non-core sales, with RM296mil, or 65% of land sales revenue to be recognised in the final quarter of financial year 2024 (4Q24) and the remaining RM157mil by the first half of 2025.
“These one-off transactions are crucial for cash flow and balance sheet strengthening, with 2024 non-core land sales earnings of approximately RM596mil representing 32% of 2023’s free cash flow.
“Going forward, we do not expect any more material non-core land disposals in 2025. Thus, management will be able to focus on driving core earnings growth,” said UOBKH Research.
The research house reported that the developer’s unbilled sales currently include RM650mil from Setia Alaman Industrial Park, while also anticipating at least an additional RM500mil from the much-expected Tanjung Kupang industrial plot sales which would contribute to in earnings in 1Q25, bringing cumulative industrial plot sales to RM1.2bil.
“Based on a net profit margin assumption of 33%, this will contribute an estimated RM380mil in net profit, or 60% of our full-year forecast.
Recall that S P Setia’s industrial parks employ diverse models, including direct industrial plot sales with net margins of up to 50% to 60%, sell-to-build, build-to-sell and build-to-lease,” it added.
Furthermore, it said S P Setia is finalising a deal with several partners to develop the Tanjung Kupang site into a managed industrial park, housing a combination of data centres, logistics and warehousing players.
UOBKH Research is expecting the industrial plot sales announcement to be made as early as the end of January.
The research outfit pointed out that the gross development value (GDV) of the 307-acre industrial site, initially valued at RM1.87bil for seven years, is now at RM3bil after the inclusion of data centre components.
“The potential GDV is expected to surge to RM9bil in the longer term, given its strategic and prime location near the Malaysia-Singapore Second Link, major highways, as well as close proximity to the Port of Tanjung Pelepas and the Pulai River estuary,” it said.
