Period

4Q15/FY15

Actual vs. Expectations

FY15 core earnings of RM529m beat expectations by 11% and 25% ahead of street’s and our full-year earnings, respectively. The main outperformance variance was higher-than-expected billings from China projects and higher-than-expected net interest income.

However, FY15 sales of RM1.82b (-8% YoY) came in slightly below expectations as it only made up 90% of our RM2.0b target. Over 4Q15, its Xiamen China project took the lead in sales while Singapore (Trillinq) improved significantly. Thus, FY15 sales composition is Malaysia (66%), China (21%) and Singapore (13%).

Dividends

Single-tier dividend of 6.0 sen (3.1% yield) declared and this was slightly below our estimate of 7.0 sen.

Key Results Highlights

QoQ, core earnings rose by 103%. Xiamen Ph1 Blk 2 was launched in 4Q15 and achieved an impressive take-up rate of 80% shortly after the launch while completion progress was already at 40% resulted in lumpy billings. EBIT margin improved by 4.6ppt to 35.9% given the margin expansions in both property investment and development. Furthermore, net interest income improved by 99% to RM48m due to reversal of interest expense relating to its qualifying assets.

YoY, FY15 core earnings rose by 16% against its topline growth of 31%. EBIT margin was compressed by 2.7ppt to 36.2% due to recognition of more China projects which carry lower margins than those in Malaysia. Net interest income also improved by 306% due to the reasons mentioned above.

Outlook

Going forward, the group will be launching RM2.0b worth of projects in FY16. This includes (i) c.RM600m GDV from Xiamen China project (Xiamen Ph 2 and Xiamen Ph 1 Blk 1 commercial portion), (ii) maiden launch of their Dengkil township project in Sep/Oct-15, and (iii) new phases from already launched projects like Bandar Puteri Bangi and 16 Sierra.

Change to Forecasts

Raise FY16E core earnings by 17%. There are no changes to our FY16E sales of RM1.8b. However, we have expedited recognition of its Xiamen, China projects as construction stages tend to be c.40% upon launching, which will cause lumpy billings if take-up rates are strong. The reversal of interest expense relating to qualifying assets will also likely continue next year and thus, we raise our net interest income assumptions as well. Unbilled sales of RM1.5b provide less than a year visibility.

Rating

Maintain MARKET PERFORM

Valuation

No changes to TP of RM2.00 based on 62% discount to its FD RNAV of RM5.31. The applied RNAV discount is steeper compared to our sector average of 52%. Downside risk appears to be limited as at current levels, the stock: (i) is trading below its book value at 0.5x Fwd PBV, (ii) has been bashed down and is one of the worst performing big-cap developer given its YTD - 18% returns vs. the KLPRP -15%. However, we do not see any near-term catalysts while the property sector backdrop remains challenging.

Risks to Our Call

Weaker-than-expected property sales.

Higher-than-expected sales and administrative costs.

Negative real estate policies.

Tighter lending environment.

Source: Kenanga Research - 28 Aug 2015