Actual vs. Expectations 1Q14 core earnings of RM61.5m made up 10% each of our and street FY14E estimates. However, stripping out land sale gains of c. RM250m from our estimates, 1Q14 core earnings still only came in at 17% of full year as new projects like Residensi 22 has yet to hit the critical stages. While it appears disappointing, we had already anticipated the weaker 1Q14. Similarly, we also expected sales for 1Q14 to be soft and sure enough, the quarter only saw RM123m sales (-82% QoQ, -87% YoY) which is below expectations being only 4% of management’s FY14E sales KPI of RM3.2b and ours of RM3.1b (refer overleaf).

Dividends  None, as expected.

Key Results Highlights QoQ, 1Q14 reported earnings of RM62m were 21% lower as last quarter saw RM120m positive deferred taxation. Stripping this out, 1Q14 core earnings improved significantly compared to 4Q13 core net loss of RM42m. Although revenue slid by 30%, GP margins improved by 8.7ppt to 32.9% as the quarter saw more billings of higher margins products. Note there were minimal land sales in 1Q14 (1% of revenue).

 YoY, the quarter fell by 71% largely due to Puteri Harbour land sale gains (sale to Liberty Bridge) in 1Q13. Hence, 1Q14 PATAMI (excluding land sale gains) actually improved by 247% due to similar reasons above.

Outlook  Although 1Q14 earnings and sales appear lacklustre, the group continues to maintain its FY14E KPIs, including its full-year sales target of RM3.2b sales. They will be rolling out more landed/township products in Nusajaya and Klang Valley, as well as, its maiden Australian project (La Trobe@ Melbourne) this year, of which most will take place in 2H14. We are also looking forward to Ascendas industrial park launch and we gather that ground breaking will be in Jun-14.

 The company also hopes to provide some clarity on the new CEO of UEMS by Jun-14.

Change to Forecasts Lowering FY14-15E core earnings by 3%-15% (refer overleaf).

Rating Maintain OUTPERFORM

Valuation  No changes to TP of RM2.60 based on 43% discount to its FD RNAV of RM4.56. At last price, the stock is trading at 51% discount to its FD RNAV, which is its historical high and we reckon much of the negatives have been priced in. We admit that the stock’s share price has been capped by negativity brought about by threats of oversupply arising from China-based developers in Iskandar Malaysia. However, we believe that the stock deserves a chance to prove that there is strong interest for its landed property offerings and maintain our call until we get a feel of take-up rates of upcoming launches.

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