Results

9M FY13 core PAT rose 7.9% yoy to RM288m, making up 58% and 63% of HLIB and consensus estimates respectively.

Deviations

3Q has not seen the strong growth needed to make up for the weak 1H (38% and 40% of HLIB and consensus estimates respectively).

Product mix was also a factor, as 3Q13 saw greater earnings contribution from sales of affordable high rise projects vs. 3Q12 which had more landed projects.

Admin and general expenses also rose 41% yoy, due to the expensing of circa RM11.5m in share-based payment for the employee’s incentive plan.

We had also underestimated the sales and marketing expenses, which were necessary to help it achieve its record sales.

Dividends

None

Highlights

Margin contraction. 3Q PBT margin contacted 3ppts yoy, due to the above-mentioned factors. However, topline remains robust, as revenue rose 16% yoy, on the back of higher revenue recognition from residential and commercial properties in the Klang Valley and Johor Bahru as a result of higher overall Group sales achieved since 2012, as well as maiden earnings contribution from 18Woodsville in Singapore.

Sales target smashed. As of our last report on SPSB, 8 months’ sales as of June were RM4.68bn. Since then, its RM5.5bn FY13 sales target has been comfortably exceed as Aug YTD sales clocked in at RM6.27bn. The largest quantum of increase came from Malaysian sales which jumped 47% within the space of two months, proof that the domestic property market demand remains healthy.

Healthy earnings visibility. Unbilled sales have risen to RM10.4bn (4.6x FY12 property development revenue).

Risks

Slowdown in sales; escalation in construction and raw material costs; delays in launches.

Forecasts

Given the above deviations, we revise our FY13-15E forecast downward by 16-20%.

Rating

HOLD

Positives: Strong product concepts and pipeline; consistent dividends.

Negatives: No longer the most liquid property stock in Malaysia.

Valuation

Maintain TP at RM3.35 (maintain 25% discount to FD RNAV), due to lack of fresh rerating catalyst as well as limited upside with the current negative sentiment surrounding the property sector. Maintain HOLD.

Source: Hong Leong Investment Bank Research- 26 Sep 2013