Period  1Q14

Actual vs. Expectations  1Q14 core net profit of RM61.5m came in below estimates, being 12% of consensus and 14% of our estimates. Billings of certain key integrated projects (e.g. KLEC) were slower than expected.

 Sales of RM1.8b were achieved in the first four months of FY14, which is considered within expectations since it makes up 30% of our FY14E estimates of RM6.1b. Growth drivers were mainly local with 80% Malaysian contribution, where Setia EcoHill was a significant contributor, while the remaining 20% was contributed by their overseas projects (Australia). Note that for 1Q14, the group recorded RM1.6b sales.

Dividends  None, as expected.  

Key Results Highlights  QoQ, reported net profit of RM96.8m was down by 24% due to slower billings progress during the festive season. However, stripping out the one-off gains on disposal of an investment property of RM47m, the adjusted core earnings of RM61.5m dipped sharply by 52% due to pretax losses in construction division and interest owing to its perpetual bond holders.

 YoY, core earnings fell by 34% due to similar reasons above, except for the festive seasonality, and RM12.1m costs for its Long Term Incentive Plan (LTIP) cost.

Outlook  Management has guided for a sales target of RM5.0b (-39% YoY) for FY14E, which is below our RM6.1b target. The reasons given were: (i) less overseas projects available for launch and (ii) the Malaysian property scene remains challenging for high-end properties.

Change to Forecasts  Lowering FY14-15E core earnings by 1%-12% as we tweaked our FY14E sales target downwards by 18%-11% to RM5.0b-RM5.8b, respectively. Unbilled sales is at a record high at RM11.4b or close to three-year visibility; the higher than average earnings visibility is due to their Australian and London projects, which are recognized on a completion basis.  

Rating   Maintain MARKET PERFORM

Valuation  No changes to TP of RM3.03 based on 45% discount to its FD RNAV of RM5.46. The applied RNAV discount is at its historical high level as it takes into account Tan Sri Liew’s departure. While the stock appeared to have bottomed out given that it is trading at -2.0SD in terms of its Fwd PBV (1.1x) and trough levels of FY14-15E PER of 16x-13x, we believe investors’ sentiment will be affected while the stock lacks fresh catalysts because: (i) FY14E sales is likely to be lower than FY13 and (ii) landbank acquisition deal-flow maybe quieter which means less news flow.

Risks  Sector risks. Changes in management/leadership. 

Source: Kenanga