KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB Research) remains cautious about SP Setia Bhd's sales outlook, given that the sales from its completed inventories are declining.
Furthermore, the property developer's year-to-date (YTD) launch of only RM805.7 million may not be enough to sustain the sales momentum.
The bank-backed research firm said SP Setia recorded a net profit after taxes and minority interests (patami) of RM73.1 million for the second quarter (Q2), bringing the first half of 2022 (1H22) sum to RM61.6 million.
HLIB Research deemed the results to be within its expectations as it expects a stronger 2H22 arising from the completion and contribution of its Australia project.
However, it noted that the company's revenue declined by 11.7 per cent YTD mainly due to lower sales of completed inventories of RM272 million.
Subsequently, core patami declined by 45.9 per cent due to revenue decline and loss from the joint venture and associates of RM17.8 million, mainly from the Battersea project.
"While the company recorded an encouraging pick up in sales momentum sequentially, we are cautious on its sales outlook given that the sales from its completed inventories are declining and YTD launches of only RM805.7 million may not be enough to sustain the sales momentum.
"Furthermore, 2H22 launches may continue to be slow as management guided that they are cautious in their new launches given the elevated building material costs and the persistent labour shortage condition.
"Finally, we remain cautious on the company's high net gearing ratio, especially given the current interest rate upcycle," it said.
Nonetheless, SP Setia's earnings should improve in 2H22, contributed by revenue recognition from the completion of its Australia project, Sapphire by the Gardens, which is targeted to be completed by Q4.
HLIB Research maintained a 'Hold' on the stock with a lower target price of 74 sen from 98 sen previously.