1HFY20 core PATMI of RM25.4m (-83.4% YoY) were below ours and consensus expectations largely due to unavoidable operating costs in 2QFY20 coupled with the expectation of a weak recovery in 2HFY20. RM405m worth of sales was achieved in 2QFY20, bringing 1HFY20 sales to RM870m. Notably, sales as of 11 Aug stands at a commendable RM1,454m while bookings stand at RM1,528m. Unbilled sales stood at RM9.7bn as of 2QFY20, representing a strong cover ratio of 2.7x. We lower our FY20 earnings forecasts by -25.1% and Maintain our HOLD rating with a slightly lower TP of RM0.86 (from RM0.87) with an unchanged 80% discount to RNAV of RM4.32

Below expectations. 2QFY20 recorded core net loss of -RM1.6m (from RM27m QoQ, RM67.6m YoY), bringing 1HFY20 core PATMI to RM25.4m (-83.4% YoY) which formed 22.1% and 13.3% of ours and consensus full year forecasts, respectively. The results were below expectations largely due to unavoidable operating costs in 2QFY20 coupled with the expectation of a weak recovery in 2HFY20. 1HFY20 core PATMI was derived after excluding EIs of -RM138.4m (-RM145.9m impairment and RM7.5m forex gain).

Dividend. None Declared.

QoQ/YoY. Revenue fell -52.8%/-75.2% to RM331.1m from the halt in operations during the MCO period. Subsequently, a core net loss of -RM1.6m was recorded (from core PATMI of RM27m/RM67.6m QoQ/YoY) in tandem with the drop in revenue

YTD. Revenue dropped -53% to RM1,034m largely due to the halt in operations during the MCO period in 2QFY20. As such, core PATMI plunged -83.4% to RM25.4m in tandem with revenue coupled with a higher effective tax rate in 1QFY20.

Sales and launches. RM405m worth of sales was achieved in 2QFY20, bringing 1HFY20 sales to RM870m. Notably, sales as of 11 Aug stands at a commendable RM1,454m while bookings stand at RM1,528m which can be attributed to the reintroduction of HOC and the ongoing Setia NOW Campaign which provides huge rebates for completed inventories. FY20 sales target stands at RM3.8bn while new launch target for FY20 has been revised to RM2.8bn (from RM4.4bn previously). As for the launches, 1HFY20 saw launches worth up to RM600m and we expect the remaining RM2.2bn of launches targeted for 2HFY20 to remain fluid at this juncture given the current market conditions. Unbilled sales stood at RM9.7bn as of 2QFY20, representing a strong cover ratio of 2.7x.

Forecast. We lower our FY20 earnings forecasts by -25.1% after imputing a lower margins and slower progressive billings given that construction progress post-MCO is hovering at 80% at best.

Maintain HOLD rating with a slightly lower TP of RM0.86 (from RM0.87) with an unchanged 80% discount to RNAV of RM 4.32 as we impute the earnings changes. FY20 is expected to be a bottom year as FY21/22 will be supported by large foreign recognitions from the UK (Battersea Phase 2 and 3a are still slated for completion in 2021) and Australian projects.

Source: Hong Leong Investment Bank Research - 14 Aug 2020