FY19 revenue of RM3.9bn translated into a core PATMI of RM304.5m (-6.9% YoY); this was within our and consensus estimates accounting for 97.1% and 96.4% of full year forecasts, respectively. New sales of RM1.5bn was achieved in 4Q19, bringing FY19 sales to RM4.55bn while unbilled sales stood at RM10.7bn (2.9x cover ratio). We see potential risks towards the FY20 sales (RM4.55) and GDV launch (RM4.4bn) targets given its high base figures coupled with the ongoing Covid-19 outbreak and political uncertainty. We cut our FY20/21 earnings forecasts by -6.5%/-12.1% respectively and downgrade our rating to HOLD with a lower TP of RM1.40 (from RM1.84) from a higher discount at 70% (from 60%) to RNAV of RM4.66. Our discount rate will be revisited upon signs of the recovery in sentiments.

Within expectations. 4Q19 recorded core PATMI of RM80.8m (+13.7% QoQ, -20.4% YoY), bringing the FY19 sum to RM304.5m (-6.9% YoY), which was within our and consensus estimates accounting for 97.1% and 96.4% of full year forecasts, respectively. FY19 core PATMI sum has been arrived after excluding +RM66.1m of EIs, which mainly includes +RM35.8m of land sale gain and +RM11.5m of fair value gain.

Dividend. Declared dividend of 1 sen per share for FY19 (FY18: 8.55 sen per share) with details of the entitlement to be determined later.

QoQ. 4Q19 core PATMI rose +13.7% to RM80.8m (from RM71.1m) on the back of better contributions from JV and associates coupled with lower minority interest paid.

YoY/YTD. Core earnings fell -20.4%/-6.9% to RM80.8m/RM304.5m largely due to lower recognition from progressive billings, higher finance costs, a higher effective tax rate which were all partially offset by a decrease in minority interest paid and improved JV and associate contributions.

New sales of RM1.5bn was achieved in 4Q19, bringing FY19 sales to RM4.5bn (12% from international). Sales from the domestic market constitutes: (i) Central Region: RM2.8bn; Northern & Southern Region: RM1.2bn; (iii) International Region: RM543m. Of the total sales, completed inventories consisted of RM637m while sales from HOC consisted of RM1.8bn (45% of local sales). Unbilled sales stood at RM10.7bn, representing a cover ratio of 2.9x.

Outlook. Management is setting a flat sales target for FY20 at RM4.55bn which consists of: (i) Central Region: RM2.9bn; (ii) Northern and Southern Region: RM1bn; (iii) International Region: RM576m. With regards to planned launches, FY20 is targeted for RM4.4bn worth of GDV with 68% located in the Central Region. As the ongoing Covid-19 outbreak and political uncertainty will likely impact the overall property market in the near-term, we see potential risks towards these targets given the high base figures vis-à-vis other property counters. Management will continue efforts to clear its RM1.4bn worth of inventories to support earnings in this challenging environment.

Forecast. We cut our FY20/21 earnings forecasts by -6.5%/-12.1% respectively after imputing a smaller launch target in FY20. Downgrade to HOLD (from Buy) rating with a lower TP of RM1.40 (from RM1.84) with a higher discount at 70% (from 60%) to RNAV of RM4.66 to reflect downside risk towards sales and GDV launch figures given the company’s high base figures. Our discount rate will be revisited upon signs of the recovery in sentiments.

Source: Hong Leong Investment Bank Research - 27 Feb 2020