Period

2Q15/1H15

Actual vs. Expectations

1H15 core net profit (CNP) of RM42.4m only made up 22.3% and 22.8% of our and consensus FY15E estimates, respectively. Nonetheless, we consider this as broadly within expectation as we are expecting a lumpy 2H15 mainly from contributions of Jalan Bukit Bintang land sale gains (RM145.0m).

1H15 sales of RM790.0m caught up in 2Q15, making up 52.0% of our FY15 estimate of RM1.5b. 1H15 sales was driven mainly by Tropicana Aman in 2Q15 Tropicana Gardens, Tropicana Metropark and Tropicana Heights.

Dividends

None, as expected.

Key Results Highlights

YoY, 1H15 topline was up by 7% to RM703.3m, driven by revenue growth from Klang Valley projects, Tropicana Gardens, Tropicana Heights, Tropicana Metropark and Tropicana Danga Bay, and a land disposal of RM106.8m. However, 1H15 PBT declined by 54% to the RM67.0m on gains on disposal in 1H14 (i.e. Canal City, Serdang, KK City and Sadong Jaya in Sabah). As a result of the lumpy disposal gain in 1H14, bottomline was also down by 56% to RM42.4m.

QoQ, 2Q15 earnings improved by 20% to RM23.2m boosted by stronger sales mainly from; (i) Tropicana Aman, (ii) Tropicana Heights, and (iii) Tropicana Gardens. However, net gearing inched down to 0.58x (from 0.70x) on receiving proceeds from Canal City land sale, while equity increased from the conversion of RCULS.

Outlook

Management maintains FY15 sales target at RM1.4b, which is quite in line with our full-year sales estimates of RM1.5b.

As part of its de-gearing exercise, TROP is planning on reducing net gearing to 0.40x by 4Q15 (from 0.58x currently) via proceeds from land sales and inventory to pare down borrowings.

Change to Forecasts

We make no changes to our FY15-16E earnings.

Unbilled sales remain strong at RM3.0b which continues to provide 2.5-3.0 years of visibility.

Rating

Maintain MARKET PERFORM

Valuation

We reiterate our MARKET PERFORM call on TROP with a lower TP of RM0.98 (from RM1.10*) as we revert to its historical low Fwd P/NTA 0.45x on FY16E NTA/share of RM2.18 as we believe investors will be less enticed by the challenging property market and the company’s relatively high net gearing and thus, we opt to look at its historical low valuations as a base point. Although the group is trading at its historical low with FY16E P/NTA of 0.4x based on current prices, we maintain our MP call as there are no promising re-rating catalyst while sector dynamics remains weak.

Risks to Our Call

Weaker-than-expected property sales

Higher-than-expected sales and administrative costs

Negative real estate policies

Tighter lending environments

Source: Kenanga Research - 14 Aug 2015