Period  4Q13/ FY13

Actual vs. Expectations Reported FY13 net profit of RM579m. However, in 4Q13, the group recognized RM120m positive deferred taxation. Stripping this out, FY13 core net earnings is only RM459m, which is below expectations; at 83% of street consensus and 71% of our estimates. This is due to (i) recognition of lumpy accrued expenses from freebies (e.g. free legal fees, etc) offered during sales (e.g. Teega) and (ii) lower-than-expected billings.

 Positively, the group’s FY13 property sales of RM3.0b met both our and management’s target.

Dividends  Proposed first and final single-tier dividend of 4.0 sen (1.9% yield) which is 33% higher than FY12 and also exceed our estimates.

Key Results Highlights QoQ, revenue was lower by 18% as the previous quarter saw development land sales amounting to RM222m (Puteri Harbour land sale to Kuok and Ascendas Phase 1). PBT was lower by 83% as the quarter was affected by (i) recognition of lower margin products with gross margins of 24%, which is lower than their normal development margins of 28%-35% and (ii) lumpy accrued expenses of c. RM40m, and (iii) ESOS grants of c. RM10m.

 YoY, revenue was up by 27% largely due to strategic/development land sales of RM623m in total. Nonetheless, group’s PBT was up by 28% due to the land sales and 42% increase in associate/JCE contributions, thanks to Horizon Hills. Without the land sales, revenue from property development would be marginally lower by 2% to RM1.6b and reported PATAMI 36% lower YoY.

Outlook  The group is targeting RM3.2b sales and 10% PATAMI growth in FY14E on the back of RM3.8b GDV worth of new projects this year. Management is gearing the bulk of their products towards townships or landed residentials and expect 1Q14 to be a quiet quarter as the market adjusts to the new property market measures. The new launches will commence in 2Q14 onwards.

Change to Forecasts Slight increase in FY14E core earnings by 4% as we bring forward recognition of a land sale while our FY14E property sales target of RM3.1b is slightly more conservative than management’s management's target of RM3.0b (refer overleaf). Unrecognized revenue of RM3.4b provides more than one year visibility.

Rating Maintain OUTPERFORM

Valuation  Our FD RNAV has been lowered to RM4.68 from RM4.82 due to unforeseen conversion of MCRPS, which resulted in a 5% increase in share base (refer overleaf). We are maintaining our applied discount rate of 43% (historical average discount rate), which means that our TP is lowered to RM2.60 from RM2.76. At last price, the stock is trading at a 54% discount to its FD RNAV, which is its historical peak discount rate. While we are cognizant of the negative sentiment on Johor, we believe the downside risk is limited at this juncture, while we anticipate more land swap deals to unfold over the next 6-12 months. We also expect sentiment to recover by mid-year once all the negatives have been fully digested while a weaker Ringgit bodes well for demand in Johor.

Risks to Our Call Unable to meet its sales target. An up-cycle in Singapore’s property sector. Sector risks, including further negative policies.

Source: Kenanga