PP 7767/09/2010(025354)

24 September 2010
RHB Research
Corporate Highlights

Malaysia
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su lts N ot e
24 September 2010

SP Setia Share Price : RM4.56

MARKET DATELINE

Fair Value : RM4.95

Skewed By One-off Gain Recom : Market Perform
(Maintained)

Table 1 : Investment Statistics (SPSETIA; Code: 8664) Bloomberg: SPSB MK

Net Net
FYE Turnover Profit# EPS Growth PER C.EPS* P/NTA P/CF Gearing ROE GDY
Oct (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (x) (%) (%)
2009 1,408.4 163.2 16.1 4.3 28.4 - 13.9 2.3 8.5 26.2 2.3
2010f 1,498.5 202.6 19.9 24.1 22.9 19.3 31.0 2.2 11.1 23.1 3.1
2011f 1,621.2 232.2 22.8 14.6 20.0 22.8 37.1 2.1 10.7 27.6 3.1
2012f 1,793.7 278.2 27.4 19.8 16.7 25.7 36.6 2.0 12.3 26.2 3.7
Main Market Listing /Trustee Stock / Syariah-Approved Stock By The SC #Normalised * Consensus Based On IBES

RHBRI Vs. Consensus

Above
♦ Within expectations. SP Setia’s 3QFY10 core net profit of RM58.1m
In Line
(+36% yoy; +13% qoq) came in within our expectation and market Below
consensus. Headline net profit of RM87.3m was skewed by a one-off gain
of about RM40m arising from the disposal of the Tesco Hypermarket in Issued Capital (m shares) 1016.8
Setia Alam – an investment property of SP Setia. Turnover upped slightly Market Cap (RMm) 4,636.6
Daily Trading Vol (m shs)
by 1.4% from 2QFY10, continued to be underpinned by the progress 1.4
52wk Price Range (RM) 3.51-4.58
billings from various projects in Klang Valley, Penang and Johor.
Major Shareholders: (%)
♦ Expect FY11 margins to improve. To recap, the cost relating to SP Skim Amanah Saham 20.9
EPF 16.0
Setia’s previous 5/95 home ownership campaign is estimated at about 5%
Tan Sri Liew 11.1
of sales. However, given the significant price increases on the companies’
properties sold in FY10 following the expiration of the 5/95 campaign,
FYE Oct FY10 FY11 FY12
profit margins are expected to be restored to normalised levels. Effects will EPS chg (%) 7.2 5.4 12.4
be seen from FY11 onwards. Var to Cons (%) 3.2 0.2 6.5

♦ To reach RM2bn sales target before Oct 2010. Over the past 9 PE Band Chart
months of FY10, SP Setia has successfully generated about RM600m sales
per quarter. In addition to the RM155m sales in Aug 2010, sales of PER = 23x
RM1.95bn for the 10 months of FY10 have already exceeded the PER = 20x
PER = 17x
company’s previous record high sales of RM1.65bn in FY09 (achieved in PER = 14x
one financial year). Unbilled sales as at Aug are estimated at RM1.76bn,
enough to underpin earnings for another one year.

♦ Forecasts. We adjust our FY10 headline net profit to incorporate the one-
off gain. In addition, given management’s guidance of better margins, we
Relative Performance To FBM KLCI
also revise our FY10-12 earnings forecasts up by 5-12%.

♦ Risks and concerns. The risks include: 1) higher tax bracket for real FBM KLCI

property gain tax (RPGT); 2) competition from peers; 3) delays in launches and
approvals; and 4) country risks.

♦ Maintain Market Perform. Following our adjustment in margins, and SP Setia

hence projects’ DCF in RNAV estimate, our indicative fair value is raised to
RM4.95, from RM4.66 (in line with our RNAV per share estimate). Given a
potential upside of 8.6%, we maintain our Market Perform rating on the
stock.
Loong Kok Wen, CFA
(603) 92802237
Please read important disclosures at the end of this report. loong.kok.wen@rhb.com.my

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Table 2. SP Setia Quarterly Results

QoQ YoY YoY
FYE Oct (RMm) 3Q09 2Q10 3Q10 9M09 9M10 Comments
(%) (%) (%)
Turnover 365.6 409.1 414.9 1.4 13.5 1,014.8 1,187.9 17.1 Turnover continued to be underpinned
by various projects, including Setia
Alam, Setia Eco-Park, Setia Walk, Setia
Sky Residences, projects in Johor and
Penang.
Operating profit 61.3 73.2 108.5 48.3 76.9 167.6 236.3 41.0 Significant increase in operating profit
was due to a one-off gain on disposal of
Tesco amounted to about RM40m.
Net int inc/(exp) (2.0) (2.2) (2.3) 5.4 15.8 (5.8) (6.7) 16.8
Associate (0.4) (0.0) 0.0 >(100) >(100) (0.4) 0.0 (100.9)
Pre-tax profit 58.9 71.0 106.2 49.6 80.2 161.4 229.6 42.2
Taxation (16.3) (19.8) (19.0) (4.1) 16.8 (47.1) (52.9) 12.5

Net profit 42.7 51.2 87.3 70.3 104.4 114.4 176.6 54.4
Core net profit 42.7 51.2 58.1 13.3 36.0 114.4 147.4 28.9 Within expectations
EPS (sen) 4.2 5.0 8.6 70.2 104.3 11.3 17.4 54.4
NTA / shr (RM) 2.0 2.0 2.1 1.5 4.5 2.0 2.1
DPS (sen) 0.0 6.0 0.0 NA NA 0.0 6.0 NA

Table 3: Earnings Forecasts

FYE Oct (RMm) FY09a FY10F FY11F FY12F

Revenue 1,408.4 1,498.5 1,621.2 1,793.7

Operating profit 185.8 239.2 271.9 320.7
Interest expenses (8.1) (15.5) (15.9) (16.6)
PBT 231.1 317.0 318.1 381.1
Tax (59.9) (85.6) (85.9) (102.9)
Minority interest 0.0 0.0 0.0 0.0

Net profit 163.2 202.6 232.2 278.2

EPS (sen) 16.1 19.9 22.8 27.4
DPS (sen) 10.5 14.2 14.3 17.1

Source: RHBRI

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Table 4: RNAV breakdown

Undeveloped Area Area Land cost Mkt value Stake Surplus

landbank Type (acre) (sqf mil) (RM psf) (RM psf) (%) (RM mil)
Central Region
Setia Alam, Shah Alam Mixed township 1,026 44.7 3.5 30 100% 1,184.8
Setia Eco Park, Shah Alam Semi-Ds and bungalows 408 17.8 8.0 40 50% 284.4
Kenny Hills Grande, KL Bungalows 6 0.3 273.3 400 70% 23.2
Setia City, Shah Alam Commercial 128 5.6 3.5 80 100% 426.6
Setia Nexus 1 & 2, Klang Commercial 10 0.4 55.0 100 70% 13.7

Southern Region
Setia Tropika, Johor Mixed township 238 10.4 7.1 30 100% 237.9
Bukit Indah Johor Mixed township 151 6.6 5.5 30 100% 161.2
Setia Indah Johor Mixed township 41 1.8 2.9 30 100% 48.5
Setia Indah Johor (new land) Mixed township 259.1 11.3 15.0 15 100% 0.0
Setia Eco Gardens, Johor Mixed township 749 32.6 5.5 30 70% 559.5

Northern Region
Setia Pearl Island, Penang 3 storey terrace & semi-d 35 1.5 28.6 100 100% 108.9
Setia View Penang Bungalows 45 2.0 2.9 100 50% 95.1
Sungai Ara Residential 29 1.3 54.0 100 100% 58.1

Others
Aeropod @ Tg Aru, Sabah Commercial 42 1.8 60.4 80 70% 25.1

Total land surplus (net of tax) 2,323.4

NPV @
Project's DCF Stake 9.7%
(%) (RM mil)
KL Eco City Mixed development 50% 302.9
Sky Residences High rise residential 70% 42.1
Brook Rd Residential 100% 10.1
Setia Vista 3 storey terrace & semi-d 100% 9.8
Eco Lakes My Phuoc Mixed township 55% 101.2
Lai Thieu Land Mixed development 90% 75.0
Hangzhou land Mixed development 55% 28.4
Melbourne CBD Mixed development 100% 179.1

Total DCF 748.5

Total net surplus & DCF 3,071.9

Add: Shareholder's equity (RM mil) 2,037.2
Warrants conversion 753.3
Total RNAV 5,862.5
No. of outstanding shares (mil) 1,184.8
RNAV per share (RM) 4.95
Target price (RM) - 0% discount 4.95

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IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
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“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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securities, subject to the duties of confidentiality, will be made available upon request.

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actions of third parties in this respect.

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