1Q16 CNP of RM95.0m was within expectations (25% of market/ours). 4M16 sales of RM536m deemed broadly in-line vs. our FY16E target of RM2.3b. No dividends as expected. Earnings estimates maintained. Management maintains sales targets with launches skewed to 2H. Reiterate MARKET PERFORM but with higher TP of RM1.46.

Within. 1Q16 CNP of RM95.0m met expectations, making up 25% of both street’s and our FY16E CNPs. 4M16 sales at RM536m is deemed broadly in-line even though it only fulfilled 23% each of our and management’s FY16E sales target of RM2.3b (flat YoY) as timing of launches are skewed towards 2H 2016. Major sales drivers were Southville City, M Residence 2@Rawang, Meridin East and i-Parc. No dividends as expected.

Weaker billings this quarter. Although revenue was weaker at 8% QoQ on timing of billings, CNP rose by 12% due to normalization of costs (recall last quarter saw provisions of RM41m). CNP was down by 4% YoY due to weaker billings, although we did see an improvement in pretax margins by 1.2ppt to 17.8% on higher margins for property. Net gearing remains healthy at 0.10x.

Management is sticking to their FY16E sales target of RM2.3b (flat YoY). Majority of its launches are skewed towards affordable housing. The group target to launch RM1.8b worth of new projects or new phases of on-going projects in 2H16 namley; Cerrado@Southville (service apartment), D’sara Sentral (remaining service apartment block), Lakeville (final tower), M Residence2@Rawang (landed clusters, last phases of landed homes), Ferringhi Residence 2 (resort condo) and The Greenway@Meridin East (link homes).

No changes to earnings. Its unbilled sales of RM4.5b provides about 1.5 years of visibility.

Maintain MARKET PERFORM with higher TP of RM1.46 (previous TP: RM1.35) as we have updated our SoP (mainly projects) but have kept our property RNAV discount unchanged at 55%, which is in line with the sector average of 53% (implied SoP discount of 46%). At our TP, FY16-17E FD Core PER is at 11.1x- 10.8x which is at its historical average of 10.9x, which we think is fair given current challenging sector dynamics. Current net yield of 4.3% is better than its big-cap comparables’ average of 3.3%. However, if 1H16 sales fail to meet a minimum 40% of FY16E sales target, there may be earnings risks and thus, the dividend yield angle may no longer be valid. Other downside risks include: (i) Weaker-than-expected property sales, (ii) margin compressions, (iii) Negative real estate policies, and (iv) tighter lending environments.

Source: Kenanga Research - 27 May 2016