Period  4Q14/FY14

Actual vs. Expectations  FY14 earnings of RM339m was within expectations, making up 101% of our, and 100% of street’s, full-year estimate.

 4Q14 sales stood at RM980m (+9% QoQ) and were mainly driven by KK Convention City, Southville City and Lakeville Residence. FY14 sales amounted to RM3.43b (+14% YoY), which is in-line with management’s revised target of RM3.4b (initially RM3.6b) and slightly above our estimates of RM3.3b.

Dividends  Proposed first and final dividend of 6.5 sen (4.1% yield), on post rights/bonus basis), met expectations against our FY14E ex-rights/bonus NDPS of 6.2 sen. This represents a higher payout of 46% vs. 42% last year.

Key Results Highlights  QoQ, 4Q14 was marginally lower by 2% albeit an 18% increase in topline. While the group realized strong billings, we note there were higher A&P costs which caused EBIT margins to erode by 2.6ppt to 13.5%.

 YoY, FY14 earnings rose by 21% on the back of strong billings (e.g. Icon City, Garden Residence, Garden Plaza, M-City, M Residence, etc.). EBIT margin was compressed by 2.4ppt to 15.6% due to: (i) higher A&P costs, (ii) lower blended project margins as there were more mass market project recognitions.

Outlook  Management targets flat FY15 sales of RM3.43b. Notably, 77% of FY15 launches will be residential, of which 84% will be priced below RM1m/unit as the group continues to focus on the more resilient mass market segment (refer overleaf for details of launches).

 MAHSING has recently completed their 3-for-10 rights issuance with free warrants. Next, we are waiting for their 1-for-4 bonus issue which would likely be in 3Q15.

Change to Forecasts  Minor adjustment to FY15E earnings (+2%) posts our house-keeping. Although management targets FY15 sales of RM3.4b, we are conservatively maintaining our RM3.3b estimates. Unbilled sales of RM5.3b provides close to 1.5 years of earnings visibility.

Rating Maintain MARKET PERFORM

Valuation  No changes to TP of RM2.06 (ex-bonus: RM1.74), based on 48% discount on its FD RNAV of RM3.96 (adjusted for post rights). Our applied RNAV discount is slightly steeper than our sector average of 44% as investors are concerned about its relatively higher sales base which could; (i) entail greater disappointment risks especially once GST kicks in, (ii) implies flatter future growth potential, which could explain why it continues to trade at trough valuations of 10x FY15E PER. The stock also lacks fresh catalysts. Nevertheless, its downside risk is somewhat protected by being a sector laggard and highly institutionalized, while FY14-15E yields are higher at 4.1% each vs. big cap developers’ average of 1.5%-3.5%.

Risks to Our Call  Unable to meet its sales target. Sector risks, including further negative policies.

Source: Kenanga