Results

• Below Expectation: 2QFY17 core earnings swung from profit to loss of RM8m after excluding grant received for infra upgrading for RM26m. 6MFY17 achieved RM3m core loss versus our and consensus full year forecast of RM40m and RM63m respectively.

Deviation

• Mainly due to lower margin from property development and higher start up operating expenses from Glo Damansara mall.

Highlights

• YoY: Revenue fell by 43% due to completion of Glomac Centro and Reflection Residence. After stripping out the one off grant received for infra upgrading (building road access and car park adjacent to MRT) surrounding Glomac Damansara development for RM26m, PATAMI recorded a loss of RM8m. To note, gross profit margin is at the lowest of 26% since 2013 versus average for the past 3 years at 34%.
• QoQ: Revenue fell by 67% from a high base in the preceding quarter from disposal of land in Cheras for RM146m. Excluding the one-off disposal, revenue still fell by 20%. For the same reason mentioned above, core PATAMI was in the red as a result of lower revenue and higher expenses.
• 2QFY17 new sales only achieved RM49m (versus RM31m in 1QFY17), bringing 1HFY17 sales to RM80m (flat YoY). No new launch was undertaken in 1HFY17 given the weak market sentiment. The company planned all the launches in 2HFY17 with target GDV of circa RM1bn. 62% of these launches will focus on landed residential properties.
• The company maintains its full year sales target of RM600m (versus our assumption of RM500m). We see downside risk to the sales target if there is any potential delay in new launching.
• Unbilled sales is depleting from RM512m to RM415m QoQ, representing 0.7x (versus 0.9x in previous quarter) of the group’s FY16 revenue from property development.

Risks

• Weakening margin.
• Delay in new launching.

Forecasts

• FY17, FY18 and FY19 earnings forecasts are reduced by 42%, 19% and 25% respectively after we lower margin assumption.

Rating

HOLD ↔

• Healthy balance sheet with low net gearing at 0.14x and consistent dividend yield of above 4.0%.

Valuation

• Maintain HOLD with TP lowered from RM0.72 to RM0.68 based on unchanged 55% discount to RNAV of RM1.51 posted earnings downgrade.

Source: Hong Leong Investment Bank Research - 01 Dec 2016