- Still have legs! Since our first TRADING BUY report issued on the 20th June 2013, SBCCORP’s share price has appriecated by 80%, outperforming both the FBMKLCI and FBMSC index which only rose 10% and 20%, respectively, over the same timeline.

- Stellar 9M14 performance. SBCCORP recorded very strong 9M14 net profit of RM23.5m (+55%, YoY) underpinned by a revenue growth of 41% to RM110.9m, beating our full-year earnings expectations of RM29.3m. The outperformance was mainly driven by better-than-expected billing progress contribution from its property development project namely The Peak Soho @ Kota Kinabalu and The Dex Suites @ Kiara East. Taking cue from the strong 9M14 results, we raised our FY14E earnings accordingly by another 10% to RM32.3m as we factored in faster progress from the two projects.

- Remaining GDV at RM6.3b. SBCCORP currently has a total remaining GDV of RM6.3b (effective RM5.4b) in the pipeline mainly coming from Kiara East (GDV: RM1.5b), Jesselton Quay (GDV: RM1.8b), Batang Kali development in JV with PKNS (GDV: RM1.7b), Cantoment Square (GDV: RM500m), and The Peak (GDV: RM500m), planned for the next 7-8 years. Its current unbilled sales stands at RM200m providing the group with at least two years of earnings visibility.

- FY13-FY16E NP CAGR of 28%. SBCCORP is targeting to launch c.RM1.0b worth of projects from Kiara East and Jesselton Quay progressively over the next two years, and we are expecting FY16E earnings to grow at a CAGR of 28% from RM26.8m to RM56.6m, should they are able to maintain year-on-year sales growth of 10% from FY15 onwards.

- Net gearing at 0.2x. Its balance sheet remains fairly healthy with net gearing at 0.2x which is within our comfortable level of 0.5x. Should the group gear up to 0.5x, SBCCORP could still comfortably raise another RM100m through debt for its landbanking activities in the future.

- Dividend policy. On Feb-2014, SBCCORP announced a dividend policy to pay out at least 20% of its profit after tax which is double the historical payout ratio of c.10%. For FY14-15E, we are projecting NDPS of 4.1-5.7 sen, respectively, implying a yield of 1.9%-2.6%.

- Maintain Trading Buy with a higher TP of RM3.24 (previously, RM2.35) based on 50% discount to its RNAV of RM6.48 which is inline with our small to mid cap property players. The main reason for the sharp TP increase is because we are using DCF-future profits methology instead of basing valuation on landbanks at market value and we have also included the Batang Kali JV project. Currently, its only trading at an undemanding PER of 6.5x to its CY15 earnings, at a discount of 33.6% to FBMSC’s 9.8x CY15E PER.

Source: Kenanga