Period

1Q15

Actual vs. Expectations

1Q15 net profit of RM49m (+5% YoY) was in line with expectations making up 22-23% of our and consensus full-year estimates.

Dividends

As expected, no dividends were declared. Payout is usually in 4Q.

Key Results Highlights

1Q15 vs. 1Q14, YoY

Bottom-line grew by a modest 5%, as a result of its weak retail business, which saw EBIT from this segment shrunk by 11%. Furthermore, higher net financing charge of RM1.5m (1Q14: +RM1.5m) pulled down overall performance as well. That said, these negatives were mitigated by a better showing from its property management division (EBIT +11%)

Although the retail segment experienced a robust growth at the top (+19%), its EBIT margin contracted by 70bpts. We believe this was due to: (i) steep discounts offered to customers to boost sales ahead of GST implementation coupled with (ii) higher depreciation charges incurred from new stores opening.

On the other hand, its property management business did well due to: (i) opening of new shopping centres, and (ii) higher rental from tenants revamp (revenue: +7%; EBIT: +11%). 1Q15 vs. 4Q14, QoQ

Earnings declined 34%, no thanks to higher opex across the board causing EBIT of both the retail and property management divisions falling by 66% and 5%, respectively.

Again, we reckon this was due to: (i) steep price discounts offered to customers, and (ii) higher depreciation charges.

Outlook

GST implementation is expected to dampen consumer sentiment and cap discretionary spending for the next 2-3 quarters. Hence, its retail business is likely to be tepid.

On the other hand, its property management division should chug along on the back of higher rental rates from tenants revamp in some of its existing shopping centres coupled with new shopping malls opening.

Change to Forecasts

No changes were made to our forecasts.

Rating

Maintain UNDERPERFORM as we see limited upside from here even after our Target Price (TP) revision.

Valuation

We fine-tune our TP slightly to RM3.15 (from RM3.10 previously) as we roll over our valuation base year to FY16.

At our TP, the stock is valued at ~20x FY16 EPS. This valuation yardstick is in-line with the 5-year average Fwd. PER.

Risks to Our Call

Faster-than-expected recovery in consumer sentiment.

Lower-than-expected opex.

Source: Kenanga Research - 22 May 2015