Period  1Q15

Actual vs. Expectations  1Q15 core earnings (CNP)* of RM101m is considered broadly in-line even though it only made up 17% of street’s full-year estimates and 22% of ours. This is because we expect lumpy contribution from its Fulton Lane, Melbourne project to be felt in subsequent 2Q-3Q15.

 Sales for the quarter of RM1.0b (75% overseas, 25% local) came within expectation as it made up 22% of management and our FY15E target of RM4.6b. Sales were largely driven by Battersea P3A followed by Klang Valley projects (particularly Eco Hill).

Dividends  None, as expected.

Key Results Highlights  QoQ, CNP dropped by 23% due to slower billings due to the festive season. Note that net gearing is now at 0.38x from 0.33x. If we strip out LTIP (1Q15: RM11m) and GST provisioning (1Q15: RM22.7m), CNP only slid by 10%.

 YoY, reported earnings rose by 5% albeit a 28% increase in toplines. This is due to 1Q14 earnings distorted by RM47m gains on disposal of investment properties which in turn, compensated for the quarter’s low development margins. Stripping this effect out, 1Q15 CNP actually rose by 94%.

Outlook  Management maintains FY15E sales target at RM4.6b (0% YoY. Key project launches will come from Eco Templer@Rawang, Setia Sky Vista, Battersea Phase 3A and other on-going projects like Setia Alam, Setia Eco Glades and Setia Hills.

 There is no risk to its Shariah-compliant status as management is very diligent on this matter.

 Change to Forecasts  Increasing FY15-16E core earnings by 30%-51% as we accounted for some changes regarding the overseas projects bullet recognitions; (i) Fulton Lane’s earnings will be felt over 2Q-3Q15, as expected, but project PBT margin is higher at 24% than our initial assumption of 19%, (ii) Parque, Melbourne’s earnings recognition is likely in FY17 vs. our initial assumptions of FY16, (iii) Battersea P1 delivery could be earlier by 4Q16 vs. our initial assumptions of FY17, although there is still risk that it could still fall into 1Q17, while PBT margin is better at 19% vs. the initial 15%. However, FY15E sales remains at RM4.6b. Unbilled sales of RM11.5b provides up to 2-3 years visibility.

Rating Maintain OUTPERFORM

Valuation  No change to TP of RM3.95 (30% discount to its FD RNAV of RM5.61) which is reflective of the takeover offer price back in Jan-12. The stock will be enjoying bullet recognitions from overseas projects, which will take earnings to new historical and industry highs. The icing on the cake of course is M&A which may involve PNB and/or SIME’s property units, which will bring final resolution to the group’s long-term management team. Notably, FY15E dividend yield of 3.5% is more attractive than big-cap developer’s average of 2.8% (excl. UOA).

Risks to Our Call  Weaker-than-expected property sales. Higher-thanexpected sales and administrative costs. Negative real estate policies. Tighter lending environments. Absence of a long-term management team. Timing of overseas contributions can skew profit figures. 

Source: Kenanga