Period

2Q15/1H15

Actual vs. Expectations

1H15 net profit of RM65m (-31% YoY) came in below expectations at 30% of both our and consensus fullyear forecasts. The negative variance from our result was due to lower-than-expected sales volume.

Dividends

As expected, no dividends were declared.

Key Results Highlights

2Q15 vs. 2Q14, YoY

Topline decline 5.4% mainly due to: (i) weaker consumer spending after the implementation of GST in April 2015, but (ii) negated by property management (+9%) due to the contributions from its new shopping centres, which commenced operations in 2014. Correspondingly, profit before tax of RM22.3m was 69.1% lower due to lower sales, higher operating costs, higher interest expenses and the results of the previous year’s corresponding quarter which included a gain on disposal of 18.18% share of the land and building of AEON Taman Universiti Shopping Centre of RM14.2m. This brings 2Q15 net profit to RM15.7m (-67%).

We believe the loss at the retail division was due to lower sales, steep discounts offered to customers to boost sales, higher finance costs coupled with higher depreciation charges incurred from new stores opening. 1H15 vs. 1HQ14, YoY

Net profit declined 31%, no thanks to higher opex across the board associated with new stores opening, causing EBIT of both the retail and property management divisions falling by 93% and 10%, respectively.

Outlook

GST implementation is expected to dampen consumer sentiment and cap discretionary spending for the next 2-3 quarters. Hence, its retail business is likely to be tepid.

On the other hand, its property management division should chug along on the back of higher rental rates from tenants revamp in some of its existing shopping centres coupled with new shopping malls opening.

Change to Forecasts

Due to the weaker-than-expected results, we are downgrading our FY15E and FY16E net profits by 16.5% and 18.6%, respectively.

Rating

Maintain UNDERPERFORM.

Valuation

Correspondingly, we cut our TP from RM3.15 to RM2.56 based on unchanged 20x FY16 revised EPS.

Risks to Our Call

Faster-than-expected recovery in consumer sentiment.

Lower-than-expected opex.

Source: Kenanga Research - 28 Aug 2015