Period    2Q12 / 1H12 

 The 1H12 net profit of RM120m was within the consensus but slightly above our expectations, making up 55% of the street's FY12E earnings of RM220m and 58% of our RM207m. Although the 1H12 revenue of RM913m met our expectations (50% of FY12E), other/interest income was much higher than anticipated. 

Dividends   None as expected. 

 YoY, the 1H12 bottom line grew 42% on the back of strong billings (Kinrara Residence, Garden Residence, M-Suites, M-City, townships, iParc projects, etc.). The property operating margin remained stable at 20.1%. The group's overall operating margin expansion by +1.8ppt to 18.7% was largely due to a stronger other income of RM12.8m (1H11: RM0.9m) due to better rental income from Southgate/Icon@Jln Tun Razak. We understand that Southgate and Icon's occupancy rates are at 90% and 77%.  

 QoQ, the 2Q12 net profit was flat at RM60m with the revenue being flat as well. 

 The 1H12 sales of RM1.29b has met ours and the company's FY12E target of RNM2.40b and RM2.50b respectively. The major drivers for the sales are Kinrara Residence, M City, Southbay City, Icon City and Johor townships. 

Outlook   The group is still awaiting the Estate Land Board approval for its acquisition of 412.4ac in Bandar Baru Bangi. We believe this will take place towards end FY12 to early FY13. 

 We adjusted just slightly our FY12-13E net profits to RM209m-RM268m, based on sales targets of RM2.4b-RM2.9b. Basically, we revised up the other income resulting in < +1% adjustment above. The unbilled sales of RM2.69b provide 1.5 years of visibility. 

Rating  Downgrade to MARKET PERFORM

 Although our TP provides a <3% total return, we are only downgrading the stock to MARKET PERFORM. We are reassessing our calls/TP for developers under our coverage in a likely upcoming pre-Budget sector report, which will address our views/concerns.

Valuation    Maintain TP of RM2.23 based on a 35%* discount to our FD SoP RNAV of RM3.42. 

Risks   Unable to meet sales targets. This will be more impactful on developers with a higher net gearing. Sector risks, including negative policies

Source: Kenanga