Period  4Q14/FY14

Actual vs. Expectations  FY14 core earnings of RM252m came below our expectation, making up only 86.0% of our full-year estimates (consensus unavailable), due to the slower-thanexpected billings recognition. Notably, the group registered RM88.2m worth of revaluation gains in their reported earnings, arising from their KSL Resort City development.

 As for property sales, no information was disclosed by management pending their upcoming briefing on Friday, 6th March 2015.

Dividends  Proposed final single-tier dividend of 5.0 sen, bringing full year dividend to 10.0 sen (4.6% yield), within our expectation.

Key Results Highlights

 YoY, FY14 core earnings saw a major improvement by 43%, underpinned by its strong revenue growth of 16% mainly coming from property development division (+17%), followed by property investment division (+15%) due to the improvements in rental income and contribution from its hotel. Its development margins also expanded to 40.1% (+6ppt) because of lower sales and administrative expenses (-3.6%).

 QoQ, 4Q14 core earnings slumped 41%, caused by weaker development revenue (-26%) and EBIT margins (- 16.8ppt) as 3Q14 could have been a high base quarter as certain projects were completed during that period. On a positive note, its property investment revenue improved by 11% driven by a seasonally strong quarter due to the festive season.

Outlook

 While the sector is expected to be challenging, especially in Johor, we continue to believe that KSL remains highly competitive in Johor given their ability to price their products more competitively than market or offer attractive packages for first homebuyers due to their low land costs. They also enjoy strong (26% of income) recurring income, which is one of the highest amongst developers, and high development margins. These factors are plus points in the currently challenging property market.

Change to Forecasts  No changes to our FY15-16E earnings at this juncture, pending upcoming results briefing to be held on Friday, 6th March 2015. Note that we are expecting FY14 and FY15 sales of RM986m and RM988m, respectively.

Rating Maintain OUTPERFORM

Valuation  Pending the upcoming analyst briefing, we maintain our TP of RM2.76 based on 61% discount to its FD RNAV of RM7.07. As it is, we are already applying a very steep discount of 61% vs. peer average of 44% while our current TP still implies 7x FY15E PER vs. small-mid cap peer averages of 8x. We remain positive on the stock as we expect the group to announce a dividend policy soon, which should re-rate the valuations, which is currently trading at FY15E 5.5x PER, towards it peers. If the guidance of sales for FY15 is sharply below our assumptions, we may consider reviewing our TPs.

Risks to Our Call  Lower than expected property sales,

 Sector risks including additional negative policies. 

Source: Kenanga