Period

1Q15

Actual vs. Expectations

1Q15 core net profit of RM82.5m was within our expectation, accounting for 30% of our full-year estimates.

As for its property sales, no information was disclosed by management pending their upcoming briefing on Friday, 5thJune 2015.

Dividends

No dividend declared, as expected.

Key Results Highlights

YoY, KSL’s 1Q15 core net profit increased by 35% to RM82.5m on the back of revenue growth of 27%, coupled with improvement in EBITDA margins to 43% (+2ppt). The stronger revenue was driven by growth from most of its divisions, i.e. property development (+31%), property investment (+6%), and car park operations (+62%), while the margin improvements were driven by: (i) property development (+2ppt) on better product margin mix, and (ii) property investment (+6ppt) which saw higher rental reversions and cost control measures.

QoQ, 1Q15 core net profit’s impressive growth of 98%, was largely driven by the improvement in revenue (+58%) mainly from its property development division due to better progressive billings for most of its ongoing projects in Johor and Klang Valley. Its property investment division posted a weaker performance where its revenue was down by 14% largely due to low holiday season.

Outlook

While the operating environment in the sector is expected to be challenging, especially in Johor, due to the concerns of oversupply of high-rises in Iskandar region, we still like KSL as they are highly competitive in Johor given their ability to price their products more competitively than market or offer attractive packages for first-time buyers due to their low land costs. That aside, they also enjoy strong (26% of group income) recurring income, which is one of the highest among developers, and high development margins. Also, their balance sheet is light at 0.03x net gearing. These factors are plus points in the currently challenging property market.

Change to Forecasts

No changes to earnings.

Rating

Maintain OUTPERFORM

Valuation

We reiterate our OUTPERFORM call and TP of RM2.48 based on 65% discount to its FD RNAV of RM7.07. Our discount of 65% is considered steep vs. sector average of 46% while our current TP implies 8.7x-7.8x FY15-16E PERs vs. its peers’ averages of 10.2x-10.3x. Furthermore, our TP translates into a net dividend yield of 4.6%, vs. peers’ average of 4.1%, and it also has a DRP program.

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 - 1 Jun 2015