S P Setia Berhad 9MFY23 core net earnings of RM153.5 million came in below expectations, making up 56% and 53% of MIDF’s and consensus full-year estimates respectively. The negative deviation was reported to be due to the high tax rate in 3QFY23.
Sequentially, 3QFY23 core net income was lower at RM42.9 million despite a higher topline mainly due to the high tax rate of 53.7% in 3QFY23 against the tax rate of 51.6% in 2QFY23. The higher revenue in 3QFY23 was mainly due to earnings recognition of UNO Melbourne which was handed over during the quarter. On a yearly basis, 3QFY23 core net income was higher (+5.6%yoy), bringing cumulative 9MFY23 core net income to RM153.5m. Earnings were lower due to higher expenses, weaker contributions from joint ventures, higher finance costs following the hike in OPR, and higher tax rate of 50.5% in 9MFY23 against a tax rate of 30% in 9MFY22. The tax rate was high in 9MFY23 due to certain non-tax-deductible expenses and non-recognition of deferred tax assets.
Meanwhile, unbilled sales eased marginally to RM6.76b in 3QFY23 from RM6.82b in 2QFY23, proving earnings visibility for 1.5 years. 9MFY23 new sales at RM3.89b. S P Setia registered new sales of RM1.33b in 3QFY23, marginally lower than new sales of RM1.5b in 2QFY23. That brought total new sales in 9MFY23 to RM3.89b which is close to management’s new sales target of RM4.2b for FY23. New sales in 9MFY23 were mainly driven by local projects which contributed to 87% of total new sales. Meanwhile, S P Setia secured a total booking of RM450m as of September 2023, which should sustain new sales momentum going forward.
On a separate note, S P Setia announced the disposal of 17.99 acres of land in Setia City to KSL Bestari Sdn Bhd for a total consideration of RM228.8m. Land disposal is part of its asset monetisation exercise and unlocking the value of its landbank. The group is expected to realise a disposal gain of RM140.6m from the disposal.
Meanwhile, proceeds from the disposal are expected to be utilised for funding new projects and to pare down gearing. Net gearing is expected to improve to 0.56x from 0.57x in 3QFY23 post disposal of land. The land disposal is expected to be completed in 2QFY24.
MIDF maintains a BUY call with a revised TP of RM1.08 and revises the earnings forecast for FY23F/24F/25F by -18%/-11%/-7% to factor in the higher expenses and higher tax rate.
