Period

2Q15/1H15

Actual vs. Expectations

1H15 core earnings of RM115m came in broadly inline despite only making up 27% of street’s FY15 estimates and 30% of ours. This is because we expect SiLC Ph3 lumpy land sales and recognition to take place in 2H15.

Sales stood at RM600m for 1H15, making up 30% of our FY15E target of RM2.0b (also management’s base target). Aurora remains the biggest driver (45%), followed by Residensi 22 (19%). We also consider the 2Q15 results as broadly inline since bulk of their new launches will take place in 2H15.

Dividends

None, as expected

Key Results Highlights

QoQ, 2Q15 revenue was down 11% due to the previous quarter seeing the completion of Summer Suites while Imperia was almost nearing completion. The reported earnings of RM84m was up by 58% due to: (i) dividend distribution receivable from an old project under creditors voluntary liquidation, and (ii) LAD or recognition of liquidated ascertained damages from a contractor. We estimate that these items may amount to c. RM30m. Stripping this out, core NP of RM61m rose by 16% on the back of cost controls and improved associates/JCE contributions as well as narrowing losses from BioXCell.

YoY, 1H15 core earnings was down by 16% due to less billings on the back of weaker historical local sales trends and weaker contributions from associates/JCE (-30%).

Outlook

There are no major changes to the group’s KPIs while we look forward to The Conservatory@Melbourne launch in Oct-15, which have seen strong interests (refer overleaf). Change to

Forecast

We make no changes to our estimates. Unrecognized revenue of RM3.8b provides 1.5 years visibility.

Rating

Maintain MARKET PERFORM

Valuation

Lowering TP to RM0.95 (from RM1.10*) as we switch our valuation methodology to applying its 5- year historically lowest Fwd PBV of 0.62x on FY16E BV/share. Its Johor-based assets are becoming tougher to realize implying that RNAVs may not be meaningful in current situation. Sectorwise, there are no major excitements either. However, at this juncture, we reckon the share price is already scrapping the bottom and thus, we maintain MP.

Risks to Our Call

(i) Balance sheet risk, (ii) weaker-than-expected property sales, (iii) higher-than-expected sales and administrative costs, (iv) negative real estate policies, and (v) tighter lending environment.

Source: Kenanga Research - 18 Aug 2015