PP 7767/09/2010(025354)

19 March 2010

Malaysia Corporate Highlights

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

R e su lt s N o te
19 March 2010

SP Setia Share Price : RM4.15

MARKET DATELINE

Fair Value : RM4.66

Expects Stronger Performance In 2H10 Recom : Market Perform
(Downgraded)

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 (12.5) 25.9 - 2.1 10.8 0.3 8.4 3.4
2010f 1,407.7 188.9 18.6 15.7 22.3 19.0 1.9 18.1 0.2 8.8 2.2
2011f 1,532.8 220.4 21.7 16.7 19.1 22.0 1.8 16.6 0.2 9.7 2.6
2012f 1,616.1 230.9 22.7 4.7 18.3 26.0 1.7 15.9 0.2 9.5 2.7
Main Market Listing /Trustee Stock / Syariah-Approved Stock By The SC #normalised * Consensus Based On IBES

RHBRI Vs. Consensus

Above
♦ Within expectations. SP Setia recorded 1QFY10/10 net profit of
In Line
RM38.2m (+22.5% yoy), or 19-20% of our full-year forecast and the full- Below
year market consensus. We consider the results within expectations as we
expect a stronger 2HFY10/10 performance. Sequentially, normalised net Issued Capital (m shares) 1016.8
profit (after excluded RM8m net gain arising from the land disposal to Market Cap(RMm) 4,219.7
Daily Trading Vol (m shs)
Greehill Resources S/B in 4QFY10/09) was down by 22% due to: a) 1.3
52wk Price Range (RM) 2.76-4.76
seasonal factors; and b) higher interest cost due to the “5/95” campaign.
Major Shareholders: (%)
♦ Commendable sales performance. The company recorded Tan Seri Liew Kee Sin 12.0
PNB 31.0
commendable sales of RM760m in the first four months of FY10/10 (Nov
Capital Group 13.0
09-Feb 10). This already met 47.5% of its initial FY10 sales target of
EPF 12.0
RM1.6bn. Given the strong sales performance due to improving economic
outlook and property demand, the company has raised its sales target by FYE Oct FY10 FY11 FY12
25% to RM2bn. It will continue to focus on landed residential property EPS chg (%) - - New
projects and at the same time, seize market share from a new market Var to Cons (%) (2.2) (1.5) (12.7)

segment i.e. condominium via Setia Sky Residence and Setia Walk. As for
PE Band Chart
its overseas projects, we remain cautious given the recent tightening
measures by regional governments. We only expect significant
PER = 23x
contributions from its China and Vietnam projects to come in from 2012 PER = 20x
onwards. As at Feb 10, the company had unbilled sales of RM1.5bn or 1.2x PER = 17x
PER = 14x
of our FY10 property development revenue forecast.

♦ Risks. The risks include: 1) competition from peers; 2) delays in launches

and approvals; 3) surge in raw material costs; and 4) country risk.

♦ Forecasts. We are maintaining our FY10-11 earnings forecasts for now. Relative Performance To
We have also introduced our FY12 earnings forecast. Meanwhile, we have KLCI
removed Setia View project from our RNAV calculation after the
termination on the JV project recently. As a result, our RNAV has been SP Setia
reduced from RM4.83 to RM4.66.

♦ Investment case. Our indicative fair value is RM4.66 based on RNAV FBM KLCI

valuation method. As the potential upside to the share price is in line with
the market return, we are downgrading our rating on the stock from
Outperform to Market Perform.

Low Yee Huap, CFA

(603) 92802237
Please read important disclosures at the end of this report. low.yee.huap@rhb.com.my

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.
Table 2. SP Setia Quarterly Results
QoQ YoY YoY
FYE Oct (RMm) 1Q09 4Q09 1Q10 3M09 3M10 Comments
(%) (%) (%)
Turnover 297.1 393.6 363.9 (7.6) 22.5 297.1 363.9 22.5 Qoq decline in revenue mainly due to:
a) seasonal factor; b) land sale in
4Q09; and c) lack of new construction
contract. As at Feb 10, the company
had unbilled sales of RM1.5bn, or 1.2x
of our FY10 property development
revenue forecast.
Operating profit 42.9 50.7 49.5 (2.5) 15.2 42.9 49.5 15.2
Net int inc/(exp) (1.9) (2.3) (2.3) 0.2 18.0 (1.9) (2.3) 18.0 Net gearing was maintained at 0.27x in
1Q10.
Associate 5.8 21.3 5.2 (75.6) (11.1) 5.8 5.2 (11.1)
Pre-tax profit 46.8 69.7 52.3 (24.9) 11.8 46.8 52.3 11.8
Taxation (15.6) (12.8) (14.2) 10.5 (9.4) (15.6) (14.2) (9.4)

Net profit 31.2 56.9 38.2 (32.9) 22.5 31.2 38.2 22.5 1QFY10/10 results were within our
expectation but below consensus
estimates.
EPS (sen) 3.1 5.5 3.7 (32.5) 20.5 3.1 3.7 20.5
NTA / shr (RM) 2.0 2.0 2.0 2.0 3.6 2.0 2.0
DPS (sen) 0.0 9.0 0.0 Na Na 0.0 0.0 Na
Source: Company, RHBRI

Table 3. Unbilled sales (RMm)

(RMm) As at Feb 10
Setia Alam 423
Setia Hills, Ampang 8
Setia Sky Residences 188
Setia Walk 309
Bukit Indah Johor 246
Setia Tropika Johor 105
Setia Indah Johor 79
Setia Eco Gardens 54
Setia Pearl Island 88
Setia Vista 67
Putrajaya 51
Setia Eco Park 194
Vietnam 39
Future progress billings since Nov 09 1,851.0
Unbilled sales as at Feb 10* 1,487.1
*after deducted 1QFY10/10 revenue
Source: SP Setia

Chart 1: Monthly new sales excluding Putrajaya (RMm)

Source: SP Setia

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Table 4. Earnings Forecasts Table 5. Discount Rate Assumptions

FYE Oct (RMm) FY09a FY10F FY11F FY12F (%)

Turnover 1,408.4 1,407.7 1,532.8 1,616.1 Risk free rate 4.2

Construction 119.4 50.0 50.0 50.0 Beta 1.0
Property development 1,216.9 1,279.3 1,404.5 1,487.8 Equity risk premium 7.5
Others 72.1 78.3 78.3 78.3 Cost of debt 5.5
Turnover growth (%) 6.0 32.1 8.9 5.4 WACC 10.1
Gross Profit 304.3 169.2 221.8 233.0

EBIT 203.0 163.2 214.1 224.6

Pretax 231.1 251.9 293.9 307.9
Tax (59.9) (63.0) (73.5) (77.0)
Net Profit 163.2 188.9 220.4 230.9
Dividend (sen) 14.0 9.3 10.8 11.4
Source: Company data, RHBRI estimates

Table 6: RNAV Estimate

Market Book
Area value value Surplus
Assets (acres) RMm RMm RMm
Bukit Indah, Johor 151.0 98.7 39.5 59.2
Setia Indah, Johor 41.0 26.8 5.1 21.7
Setia Tropika, Johor 238.0 155.5 73.1 82.4
Setia Eco Garden, Johor 749.0 489.4 179.4 217.0
Setia Pearl Island, Penang 35.0 152.5 43.6 108.9
Sungai Ara 29.0 126.3 68.2 58.1
Setia Nexus 1 & 2, Klang 10.0 34.8 26.1 8.7
Kenny Hills Grande 6.0 78.4 71.4 4.9
Setia Alam 1,026.0 1,340.8 156.0 1,184.8
Eco Park 408.0 1,421.8 142.2 639.8
Setia City 128.0 167.3 19.5 147.8
Aeropod @ Tg Aru 42.0 164.7 110.5 37.9

DCF
KL Eco City 89.5
Sky Residences 8.6
Brook Rd 3.2
Setia Walk 21.2
Setia Vista 5.2
Eco Lakes 15.6
Lai Thieu Land 16.2
China, Hang Zhou 6.5

Net asset value 2,737.2

Add : Shareholders funds as at 31/10/09 2,037.2
Total net asset value 4,774.4
No. of shares (m) 1,016.8
RNAV per share (RM) 4.70
Proceeds from warrants 753.5
Total NAV 5,527.9
No. of shares (After warrants conversion) 1,185.0
FD RNAV per share (RM) 4.66

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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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