1QCY15 reporting season was mainly within expectations for developers. This is an improvement from the last reporting season where there were more misses than hits. As expected, headline sales reported for 1QCY15 generally missed or lagged behind sales target as most developers skewed their launches towards 2H15. In general, most developers are targeting flat to declining sales for the year. Most stock recommendations were maintained as we have already downgraded the calls in the previous quarters. While property stock values are emerging as the sector’s average RNAV discount remains at 50% (unchanged from our last price cut-off on 20/3/15) and earnings/recommendations downgrades have stabilized, the sector lacks catalysts and needs confirmation of better take-up rates from upcoming launches. The market continues to be plagued by weaker buyers’ sentiment and tightened lending liquidity to the sector. At this juncture, we think it is still too early to go bottom-fishing for near-term performers due to domestic and external uncertainties over 3QCY15; this is particularly so for a high-beta, big-ticket item sectors like developers and hence, we advise investors to remain nimble over the volatile period over 3QCY15. Long-term investors can gradually accumulate sizeable positions in deeply discounted stocks if they take longer than 12 month view; currently, we only have OUTPERFORM calls on SPSETIA (TP: RM3.95), ECOWLD (TP: RM2.05), KSL (TP: RM2.48) and HUAYANG (TP: RM2.20).

An improvement from last quarter. Results for 1QCY15 were mainly within expectations. Out of 14 developers under our coverage*: (i) 64% or 9 companies came in within-to-broadly within our estimates, (ii) 14% or 2 developers (UEMS, CRESNDO) fell behind our estimates on weaker billings due to the slump in Johor market, and (iii) only HUAYANG exceeded our expectations due to better cost controls and higher billings. This is an improvement from last quarter where only 36% of our coverage met expectations and only one company exceeded. There are no discernible quarterly trends for developers given timing of project recognitions. *IJMLAND is now excluded from our coverage since it has been privatised. ECOWLD is included as part of the 14 developers under coverage, but we had initiated ECOWLD post its recent reporting and thus, have insufficient data on result expectations.

1QCY15 sales still weak; banking on 2HCY15. On headline sales, 57% or 8 developers (MAHSING, SUNWAY, UOADEV, IOIPG, TROP, HUAYANG, CRESNDO, CRESBLD) missed full-year targets or are behind sales targets as most developers skew launches towards 2H15. Only 29% or 4 developers either met or exceeded targets as follow: (i) MRCB exceeded, (ii) SPSETIA and UEMS were within due to overseas sales, and (iii) MATRIX also within given its pure affordable township exposure. As for KSL, we are expecting its sales to be inline, pending its upcoming briefing on 5th June 2015. There is deterioration from the last quarter where 54% of developers were on track with their sales targets.

Flat to declining sales, earnings largely unchanged. Headlines sales target for the year are either flat to declining across the board. FY15-16E earnings were largely maintained save for: (i) SPSETIA which we raised earnings due to better-than-expected margins from its overseas projects, and (ii) CRESNDO which we trimmed earnings on lower sales targets. This is better than last quarter when we trimmed earnings for 50% of developers.

Recommendations were mostly maintained. Most CALLs/TPs are maintained, except for: (i) SUNWAY which we downgraded to MP while maintaining the TP as we felt most positives had been priced-in, (ii) MATRIX which we raised TP but maintained MP call. Compared to last quarter, this is an improvement, as back then, we downgraded CALLs and/or TPs for 31% of our developers.

Source: Kenanga Research - 1 Jun 2015