KUALA LUMPUR, April 21 ― RHB Research has upgraded SP Setia Bhd to a buy recommendation from neutral with a higher target price (TP) of RM1.48 from RM1.28, driven by better prospects of the company's financial position.
In a research note today, RHB Research said SP Setia’s financial position should gradually improve from the second half onwards, with degearing being the property developer's top priority.
“We believe the handover of a few projects in Melbourne and Singapore as well as the potential completion of some land disposals will help reduce its net gearing to 0.51-0.53x by year-end from the current 0.61x (including non-controlling interests).
“Our new TP is now based on a 65 per cent discount to revalued net asset value (from 70 per cent previously) with a two per cent environmental, social and governance premium,” it said.
RHB Research said the completion of SP Setia's overseas projects such as Sapphire and UNO in Melbourne in the third quarter of 2022 (Q3 2022) as well as Daintree Residence in Singapore in Q4 2022 should pare down RM1.5 billion to RM1.6 billion in debt from the company’s total borrowings of RM12.6 billion.
“Also earnings are expected to be more lumpy in the second half this year,” it added.
It said the property developer is also looking to replenish its landbank in Melbourne given that the existing projects there will be completed this year.
“We are not concerned over the potential funding as the accumulated profits generated in all SP Setia’s past projects in Melbourne should help to finance the new land,” said RHB Research.
The research house said SP Setia’s slower sales in Q1 2022 is generally within expectation and believe the company’s sales target of RM4 billion for this year remained on track on the back of RM4.25 billion new launches, of which 65 per cent are landed properties. ― Bernama
