Although RHB Investment Bank Bhd (RHB Research), MIDF Amanah Investment Bank Bhd (MIDF Research) and Maybank Investment Bank Bhd (Maybank IB) have maintained a positive outlook for SP Setia Bhd with a BUY recommendation, the research houses have either maintained or revised the company's share target price to be between the range of RM1.64 and RM1.72.
RHB Research noted that the company's 9M24 earnings exceeded expectations, driven primarily by its land monetisation strategy, which helped improve net gearing to 0.38 times from 0.5 times in FY23. The research house added that the group's earnings were further bolstered by a reduction in joint venture (JV) losses, particularly in its Battersea Power Station JV.
"However, earnings were lower quarter-on-quarter in 3Q24, largely due to a significant land sale in the previous quarter, which had resulted in a higher profit.
"Revenue for the period was down, but earnings were still largely driven by land sales, including a major gain from Setia City," RHB Research said in a note, adding that it expects continued sales momentum from SP Setia with an estimated RM1.97 billion worth of projects set to be launched by year-end.
Maybank IB, meanwhile, said SP Setia's 3Q24 core net profit of RM84 million was in line with expectations, boosted by land sales but impacted by losses from its Battersea Power Station project.
"The group's 9M24 sales of RM3.2 billion accounted for 72% of its FY24 sales target. With continued land sales and new project launches, such as ATLAS Melbourne, the group is on track to meet its RM4.4 billion target," Maybank IB said.
On the other hand, MIDF Research has revised SP Setia's earnings forecast downward by 21% for FY24 due to slower-than-expected progress billing and a higher tax rate in 3Q24.
"Despite this, the company remains on track to meet its sales target of RM4.4 billion for the year.
"The group registered RM3.2 billion in new sales for 9M24, with RM731 million from land sales, and the outlook remains stable with upcoming launches like the Setia Federal Hill Phase 1 that is expected to contribute significantly to new sales growth in early 2025. Unbilled sales were slightly lower at RM3.5 billion in 3Q24, indicating reduced earnings visibility for the year ahead," MIDF Research said.
Despite short-term fluctuations in earnings, the research houses noted that the company's long-term prospects remain solid, supported by its well-established presence in both local and international markets.
With an attractive valuation, trading at a 54% discount to its latest net tangible assets of RM3 per share, the research house believed the company's strategic land sales and continued development will support future earnings, making it an appealing investment despite some near-term challenges.
