9M19 revenue of RM3.1bn translated into a core PATMI of RM223.7m (-0.9% YoY); this was below HLIB and consensus estimates accounting for 63.8% and 67.8% of full year forecasts, respectively. New sales of RM1.1bn was achieved in 3Q19, bringing 9M19 sales to RM3.07bn while GDV launches came in at RM1.16bn, bringing 9M19 launches to RM2.71bn. Forward earnings visibility continues to be supported by the total unbilled sales of RM10.5bn, representing a strong cover ratio of 3.2x. Despite our expectations of 4Q19 to be seasonally stronger, we cut our FY19/20/21 earnings forecasts by -10.5%/-10.9%/6% respectively on lower margins. Maintain BUY call with a lower TP of RM1.84 based on a discount of 60% to RNAV of RM4.60.

Below expectations. 3Q19 recorded core PATMI of RM71.1m (+5.1% QoQ, +9.1% YoY), bringing the 9M19 sum to RM223.7m (-0.9% YoY), which was below HLIB and consensus estimates accounting for 63.8% and 67.8% of full year forecasts, respectively. Exceptional items removed were in relation to land sale and forex gain totalling RM76.8m. No dividends were declared.

QoQ. 3Q19 revenue decreased -30.2% to RM932.1m largely due to the recognition of land sale (RM449.2m) in the preceding quarter. Core PATAMI increased by 5.1% to RM71.1m on the back of lower effective tax rate.

YoY. Revenue decreased -6.1% as last year (3Q18) recognised the hand-over of the Australian project, Maison Carnegie. Meanwhile, core PATAMI improved 9.1% on a higher tax base incurred last year partially due to the higher tax rate in Australia.

YTD. Revenue increased 21.7% to RM3132.7m 1m largely due to the recognition of land sale in 2Q19. Core PATMI remained relatively flat (-0.9%) at RM218.7m as lower margin product mix was offset by the increase in recognition of progressive billings.

GDV launches. RM1.16bn worth of GDV launches were recorded for 3Q19, bringing 9M19 launches to RM2.71bn, with another RM2.17bn worth of GDV planned to be launched in 4Q19. Note that most of the planned launches are focused in landed projects within matured townships where underlying demand by owner occupiers are still favourable.

New sales of RM1.1bn was achieved in 3Q19, bringing 9M19 sales to RM3.07bn (14% from international). Sales from the domestic market constitutes: (i) Central Region: RM1.75bn; Northern & Southern Region: RM854m; (iii) International Region: RM467m. Management maintains its sales target of RM4.55bn which will be supported by RM2bn worth of launches taking place in 4Q19 and we expect it to be a seasonally stronger quarter. Forward earnings visibility continues to be supported by the total unbilled sales of RM10.5bn, representing a strong cover ratio of 3.2x.

Forecast. We cut our FY19/20/21 earnings forecasts by -10.5%/-10.9%/6% respectively after imputing a lower margin recognition moving forward. Maintain BUY rating with a lower TP of RM1.84 (from RM1.92) with a 60% discount to RNAV of RM4.60. Earnings trajectory is expected to improve moving forward along with better progression for newer projects. At current valuations (70% discount to RNAV and 0.4x PB), it is attractive for investors to collect on the backdrop of better earnings trajectory and growth expectations in FY20.

Source: Hong Leong Investment Bank Research - 20 Nov 2019