SP Setia 4QFY08 : Going back to basics

December 11, 2008 at 1:19 am Leave a comment

· Above expectation.
FY2008 results came in above house but within market expectations. Core net profit exceeded our estimates by 7.4%. Management announced a final dividend of 10 sen gross (7.5 sen, net of tax) which brings the full year dividend to 17 sen gross (12.7 sen, net of tax). This translates into a payout ratio of 60% for FY2008. Management maintains its minimum payout policy of 50% going forward.
· Revenue +15.1% y-o-y, core net profit -28.3% y-o-y.
SP Setia achieved a record revenue of RM1,328.3m for FY2008 but core net profit (excluding a RM26.9 gain from disposal of 25% stake in Loh & Loh) declined by 28.3% y-o-y to RM186.6m due to higher building materials prices, delay in construction progress and timing mismatch of
operating costs for new projects. Margin erosion will however be a thing of the past as most building materials prices have stabilised while steel bar prices are on the decline. Nevertheless, recovery of margin to previous levels is not expected in FY2009 as demand and selling price come under pressure amid a slowdown in global economy.
· Back to basics.
Recognising FY2009 will remain a challenging year, SP Setia will go back to basics and focus on mass housing products for middle income segment where demand fundamentals are still strong and less speculative. Project launches will be cautious and focus will be on existing townships where infrastructure and amenities are already in place. This strategy will minimise cash outlay for new product launchings.
· No change to estimates.
Management has set a sales target of RM1.1bn for FY2009 as compared to our earlier estimate of RM1.4bn. This is conservative as it is based on launches from existing projects only. As for earnings guidance, management is confident of matching FY2008 net profit which is in line
with our estimate. Earnings downside risk will be minimal in the near term as it is backed by unbilled sales of RM1.1bn.
· Valuation is not attractive yet.
While we like SP Setia’s execution track record, valuations at current levels are not compelling vis-à-vis domestic and regional peers. We maintain our HOLD call with target price unchanged at RM2.62.


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