Period

1Q15

Actual vs. Expectations

1Q15 earnings of RM98.9m was within expectations, making up 26% of our, and 25% of street’s, full-year estimates.

YTD till 22-Apr sales was at RM761m (1Q15: RM638m) which made up 23% and 22% of our and management’s target of RM3.3b and RM3.4b, respectively. This is deemed slightly weak considering that their historical quarterly sales have been like clockwork in terms of being on schedule to meeting management’s full year targets. However, considering the challenging property landscape and onset of GST, it is understandable as the new launches are skewed towards 2H15.

Dividends

None, as expected.

Key Results Highlights

QoQ, earnings was up by 17% albeit a 7% decline in revenue. Although billings fell slightly due to the festivities period in early 1Q15, EBIT margin improved by 3.1ppt to 16.6% largely due to less sales & marketing expenses (- 47%) as the quarter saw relatively less new project launches (new phases of on-going projects).

YoY, 1Q15 earnings rose by 18% largely due to on-going billings. Positively, post the perpetual bond issuance, the group’s net gearing is now nearly at net cash position.

Outlook

Management targets flat FY15 sales of RM3.43b. Notably, 84% of FY15E residential launches will be priced below RM1m/unit as the group continues to focus on the more resilient mass market segment.

The 1-for-4 bonus issue ex-date is on 8-June whilst entitlement will be on 10-June. We have factored this into our earnings model.

Note that redemption date of the 7-year RM325m nominal value of 3.25% redeemable convertible secured bond is in about a year’s time (10-Jun-16), while conversion can take place at any time since its issuance. However, we are not overly concerned about redemption given their perpetual bond issuance (nominal value: RM540m) which will also be used for landbanking.

Change to Forecasts

No changes to earnings. Unbilled sales of RM5.1b provides close to 1.5 years of earnings visibility.

Rating

Maintain MARKET PERFORM

Valuation

No changes to ex-Bonus TP of RM1.74 based on 48% discount on its FD RNAV of RM3.35 (ex-Bonus). Our applied RNAV discount close to our big cap developer’s average of 46%. Although the stock is trading near trough valuations of 10.9x-10.2x FY15-16E PER, sector dynamics are capping near term upsides. Positively, downside risk is somewhat minimised by it being a sector laggard, and highly institutionalized shareholding, while FY15E yields are slightly higher at 3.8% vs. big cap developers range of 1.5%-3.5% (except UOA whose yield is 5.9%).

Risks to Our Call

Weaker-than-expected property sales. Higher-thanexpected sales and administrative costs. Negative real estate policies. Tighter lending environments.

Source: Kenanga Research - 29 May 2015