Despite hitting only 17.4% of our full-year estimate, 1Q16 core earnings of RM123.4m is deemed broadly within expectation as lumpy contributions are expected from Battersea Phase 1 towards 2H16. The 1Q16 and 4M16 sales of RM306m (7.7%) and RM696m (17.4%) were also below both our and management’s target of RM4.0b for FY16. However, with sales expected to pick up from launches in 2Q16, our earnings estimates are maintained. Reiterate MARKET PERFORM with unchanged TP of RM3.13 based on 45% discount to its FD RNAV of RM5.70.

1Q16 core earnings of RM123.4m came in broadly within our and consensus expectations at 17.4% and 18.2%, respectively. We expect lumpy contributions from Battersea Phase 1 towards 2H16. 1Q16 sales stood at RM306m while management provided us with 4M16 sales of RM696m, which only made up a weak 17.4% of our and management’s FY16E sales target of RM4.0b. However, this is expected given the timing of launches, which is mostly skewed from 2Q16 onwards, worth RM4.7b.

QoQ/YoY comparables are not available due to the changes in yearend. 1Q16 topline was driven mostly by local projects, and Eco Sanctuary Singapore. However, this was slightly lower than the last two months of FPE15 as it was driven by the restatement of completed projects. (Refer overleaf).

Outlook. Management is still keeping to its FY16E sales target of RM4.0b. However, we are of the view that if 1H16 sales do not achieve 40% of our and management’s FY16E targets, we may look to revise our sales estimates downwards. Going forward, we expect more Australian land banking news as the group has always intended to expand their footprint in Australia and is deploying a two-prong strategy in Australia where they are looking for: (i) more sizeable projects (e.g. Fulton Lane size) of >RM1b GDV in value, and (ii) quick turnaround projects of between GDV RM100-200m size, like the Carnegie and Chapel Street projects. We leave our FY16-17E earnings unchanged at RM708-834m. Unbilled sales of RM8.6b provide 2-3years of visibility.

Maintain TP at RM3.13 and MARKET PERFORM call. We maintain our FD RNAV at RM5.70 and our FD RNAV discount at 45% (peers: 53%), which implies a TP of RM3.13 or a total return of 3.2% at current levels. While we are glad that the current management team is permanent and addressing concerns of leadership and company direction, the issue of share's liquidity still needs to be resolved while we also believe the current challenging sector dynamics may keep investors at bay from such illiquid counters. Downside risks include: (i) Weaker-than-expected property sales, (ii) higher than- expected sales and administrative costs, (iii) negative real estate policies, and (iv) tighter lending environments.

Source: Kenanga Research - 13 May 2016