Period

4Q15/12M15

Actual vs. Expectations

12M15 core earnings (CNP) of RM710m exceeded expectations as it made up 101% and close to 100% of our and street’s 14MFY15E earnings, respectively. We observed better than expected development margins from Fulton Lane@Melbourne and quicker recognition of local projects.

Sales of RM3.44b for 12MFY15 is on track as it made up 86% of both our and management’s 14MFY15E target of RM4.0b. Key drivers remain in the Klang Valley (47% of sales) and Battersea (32% of sales).

Dividends

None, as expected.

Key Results Highlights

QoQ, CNP dropped by 54% on the back of a 13% decline in revenue and -9.5ppt compression in pretax margins. This was largely due to the last quarter’s high base effect as there is where Fulton Lane handovers were mostly done. Effective tax rate was also higher at 36.1% due to nondeductible expenses.

YoY, CNP rose sharply by 97% thanks to the delivery of Fulton Lane (recognition on completion). Consequently, this allowed net gearing to further improve to 0.19x from 12M14’s 0.33x.

Outlook

We expect to see the lumpy recognitions from the completion of Battersea Ph 1 over FY16-17, as oppose to earlier assumptions where we expect full delivery of Ph 1 by FY16. Meanwhile, Battersea Ph 3 take-up rate is at 60%. Positively, the Northern Line extension has begun, which bodes well for the subsequent phases of Battersea. The group is pushing the launches of the affordable apartments in Jelutong, Penang and Eco Templer (by 1Q16), towards FY16. It remained confident of achieving its 14MFY15E sales target of RM4.0b from on-going projects.

Change to Forecasts

Increase FY15E CNP by 9% as we bump-up project margins thanks to Fulton Lane’s delivery, and expedited local project billings. However, FY16E CNP is lowered by 21% due to better clarity on Battersea Ph1 timing of recognition, as mentioned above. Unbilled sales of RM9.51b provide 2 years visibility.

Rating

Maintain MARKET PERFORM

Valuation

Maintain TP of RM3.50 (38% discount to its FD RNAV of RM5.61). Besides seeing record and industry high earnings, its 14MFY15E-FY16E dividend yields of 4.9%- 4.0% are more attractive than big-cap developers’ (>RM3b mkt cap) average of 2.8% (excl. UOADEV at 6.7%). We reckon our current pay-out assumption of 50% (in-line with DPR) could be conservative, considering the bullet recognition from Fulton Lane this year; but higher pay-outs depends on whether it will continue with its overseas and local landbanking plans. However, the stock lacks near term catalysts and M&A news have quietened down while investors’ confidence hinges on more permanent management team albeit the strong fundamentals of the company.

Risks to Our Call

(i) Weaker-than-expected property sales. (ii) Higher-thanexpected sales and administrative costs. (iii) Negative real estate policies. Tighter lending environments. (iv) Vacuum in long-term management team.

Source: Kenanga Research - 11 Dec 2015