Period  3Q14 / 9M14

Actual vs. Expectations 9M14 core earnings of RM240m came in above expectations, making up 81% of consensus’ forecast and 82% of our estimates due to better-than-expected net interest income and higher billings.

 9M14 group sales amounted to RM2.45b or 89% of our FY14E target sales of RM2.8b which comprised Malaysian sales of RM1.75b with the balance coming from their London project. However, we deem this as broadly within expectations as we anticipate a weaker 4Q13.

Dividends  None, as expected.

Key Results Highlights QoQ, core net earnings of RM90.3m was higher by 21% due to stronger billings, slight improvement in property pretax margins (+0.7ppt) and a 96% increase in net interest income to RM13.9m.

 YoY, 9M14 core earnings rose by 84% on the back of more billings given the 55% increase in topline. Property pretax margins improved by 3.5ppt due to billings from higher margins projects like The Light and township projects (Bandar Utama@Sandakan, Seremban 2, Shah Alam 2, Nusa Duta@Johor). Associate/JCE losses also narrowed substantially to near zero from a RM9.7m loss in the previous year, thanks to contributions from Seri Riana and Rimbayu.

Outlook  4Q14 sales may be softer QoQ due to cooling measures and the absence of new major launches since the beginning of CY14. Note that Rimbayu will become a 60% subsidiary in 4Q14, meaning there will be a lumpy one-off non-cash gain RM308m which we have already factored in.

 In the new few months, the group will be launching Rimbayu Phase 3 (linked semi-d). The group is targeting RM3.0b worth of launches for FY15E, which includes the widely anticipated Pantai Sentral and Nasa City @ Johor project, while remaining launches will be mainly focused on affordable/township launches. Management believes the market will regain its strength towards 2HCY14.

Change to Forecasts Raise FY14E core earnings by 8% but slightly lowered FY15E core earnings by 2% while maintaining our group sales target (refer overleaf). Unbilled sales are strong at RM2b or 1.5-year visibility.

Rating Maintain OUTPERFORM

Valuation  Maintain TP of RM3.15 based on 13% discount to its FD RNAV of RM3.62. We continue to like the stock for

its light balance sheet, lower sales base compared to other large cap developers and high exposure to affordable/township projects. At current levels, the stock is trading at 29% discount to its RNAV, which is at -1.0SD levels. FY14-15E core PERs are also compelling at 13x-11x or at trough levels.

Risks to Our Call Unable to meet sales targets. Delays in launches.

Sector risks, including severe negative policies affecting property buyers/investors.

Source: Kenanga