Period  4Q14 / FY14

Actual vs. Expectations  FY14 core earnings of RM361m (i) missed market expectations as it came in at 84% of consensus’ full year estimates (ii) beat ours as it exceeded our estimates by 11%. The main variance in both market and our expectations is largely due to the GST provisioning where market had underestimated the impact while we had overestimated it.

 Sales for the year were RM4.62b (-44% YoY) which came in 8% short of our RM5.00b target. Management did not provide official guidance for FY14 sales target. The weaker sales are due to less overseas launches while local market sales are softer due to cooling measures.

Dividends  Final dividend of 5.7 sen (single-tier) declared, bringing FY14E NDPS to 9.7 sen (3.0% yield), which met our expectations of 9.8 sen due to our lower payout assumptions vs. actual 60% of reportable PATAMI.

Key Results Highlights

 QoQ, core earnings rose by 27%. Revenue rose by 37% on strong billings arising from the previous year record sales. However, there were slight PBT margin compressions from property which fell by -4.0ppt to 17.4% because of the mismatch of initial expenses and revenue recognition of their UK and Australia projects which will be on a ‘completion basis’.

 YoY, FY14 revenue rose by 24% but core earnings fell by 14% largely due to the explanation above, particularly those related to Battersea where JCE/Associates was in the red. Also recall that the onset of the perpetual bonds at the start on FY14

resulted in higher finance (at MI level) cost. Also, this year, the group has incurred RM32.1m worth of GST provisioning cost as well, along with RM28m LTIP expenses. It is also noteworthy that while reported earnings fell by 3%, reported EPS slid by 9% as share base rose by 3% given the new shares arising from the DRP.

Outlook  FY15 sales target set at RM4.6b which is flattish YoY.

Key project launches will come from Eco Templer@Rawang, Setia Sky Vista, Battersea Phase 3A (already 50% take-up) and other on-going projects like Setia Alam, Setia Eco Glades and Setia Hills.

 Over FY15-16, we should see delivery of bullet recognition of Fulton Lane@Melbourne and Parque@Melbourne, respectively, which will keep earnings buoyant.

Change to Forecasts

 Lowering FY15E core earnings by 9%. This is mainly due to lower than expected sales in FY14, particularly from its local projects. We are also lowering our FY15E sales target to RM4.6b (from RM5.3b) which is in-line with management. Unbilled sales of RM11.1b provides up to 2-3 years visibility.

Rating UNDER REVIEW

Valuation  Out CALL/TP is UNDER REVIEW pending our upcoming sector strategy report. We are increasingly concerned about the challenging property landscape. Nonetheless, we notice that SPSETIA has been more visible to investors of late while we think there are high odds of M&A activities with property units owned by PNB as the stock has not been able to fully reflect its true value. Our previous recommendation was MARKET PERFORM with a TP of RM3.30.

Risks to Our Call  Sector risks. Upside risks are M&A activities.

Source: Kenanga