Period     3Q13 / 9M13

Actual vs. Expectations    9M13 core earnings of RM13.1m came below consensus, but within our expectations as it made up 68% of street and 74% of our estimates. 

Dividends    None, as expected. 

Key Results Highlights     YoY, 9M13 core earnings was lower by 52% given lower property sales and consequently, billings. YTD sales fell by 30% YoY to RM64m due to lack of new launches. Pretax margins compressed by 4.1ppt to 27.1% because of 1) higher contributions from BPB Phase 3 which carry lower margins compared to GP Condo and Infinity; 2) wider start-up operating losses by 122% arising from GP Mall.

QoQ, 3Q13 core earnings dipped by 73% to RM1.5m. The quarter’s sales declined by 58% to RM11m due to fewer sales from GP Condo and BPB Phase 3, as well as, absence of Infinity sales.EBITDA margins also compressed by 4.8ppt to 25.0% due to reasons above. Net gearing of 0.42x was up from last year’s 0.31x as GP Mall is nearly completed. 

Outlook    GP Mall works is almost completed and should commence in Jul-13 and we expect the mall to be 95% occupied by end CY13. We believe the group will eventually inject the mall into a REIT since retail M-REITs have fared well over the last 5 years; but the mall will take a minimum of 3 years to mature. 

The group has yet to kick-off sizeable project launches (i.e. Alila 2 and Bayan Baru) and timeline has not been firmed yet. 

Change to Forecasts     No changes to FY13E but raise FY14E core earnings by 14% to RM17.0m. We are imputing for a new project launch in BPB (184 units of terraces) of GDV RM60m in FY14. Unbilled sales of RM12m provide <6 months earnings visibility. 

Rating  Maintain MARKET PERFORM

Valuation    It has done well given YTD gains of 54% given the rally of the property sector. It is now trading at peak 0.7x Fwd PBV which is nearly +3.0SD to its 4-year mean while FY13-14E core earnings and sales are declining to flattish. While we have an OVERWEIGHT call on the sector, we prefer purer developers (i.e. less property investment) with more aggressive sales and earnings growth.

Increase our TP to RM2.40 (from RM1.70) as we narrow the discount factor to 25% (from 47%) to FD RNAV of RM3.20. This is to reflect the bullish sector mode and improved future earnings.

Risks    Sector risks, including negative policies.

Source: Kenanga