1H16 CNP of RM184m was within expectations (49%/48% of market/ours). 7M16 sales of RM1.03m is deemed to be broadly in-line vs. management’s FY16 target and ours of RM2.3b. No dividends as expected. Earnings estimates maintained. Management maintains sales targets with launches skewed towards 2H. Call/TP is UNDER REVIEW (previously MP/TP: RM1.46) pending our sector update next week.

Within expectations. 1H16 CNP of RM184m came within expectations at 49% of street’s FY16 estimate and 48% of ours. 6M16 sales of RM769m only made up 33% of management’s and our target of RM2.30b (flat YoY) but 7M16 came in very strong at RM1.03b or 45% of targets due to timing of launches (e.g. new releases from SouthvilleCity@Bangi, Lakeville Residence@KL, MeridinEast@Johor), which picked up momentum in mid-2016. While this may appear to be slightly behind schedule, we note that: (i) July sales of RM259m was strong, (ii) last year’s 2H sales chalked up RM1.3b sales after a soft 1H, and thus there is still possibility of meeting its full-year target. No dividends declared, as expected.

Earnings softened. 2Q16 CNP fell by 7% QoQ on higher selling/marketing and administrative/other expenses (+35% QoQ) as the group ramped up launches during that quarter. 1H16 CNP was marginally lower at -3% YoY-Ytd on lower billings given the 5% revenue decline; nonetheless, pre-tax margin improved slightly by 0.8ppt to 16.6% as the above-said expenses (-23% YoY-Ytd) are more restrained this year. Net gearing remains healthy at 0.07x.

Management maintains FY16E sales target of RM2.30b, driven by c. RM2.0b worth of new launches while the remainders are driven by ongoing projects. To date, the group has launched RM1.20b of its pipeline launch or a remaining RM0.76b to be launched for the rest of the year; this includes D’saraSentral@SgBuloh, M’Residence 2@Rawang and Cerrado, Southville@Bangi which are mainly in the affordable housing space. We also believe the group is looking to landbank in the Klang Valley which will most likely be skewed to affordable housing type landbanks.

No changes to earnings forecasts. Unbilled sales of RM4.21b (-7% QoQ) provides 1.5 year visibility while we note this is the second consecutive quarter that unbilled sales had dropped QoQ.

UNDER REVIEW. We are placing our call/TP under review pending our sector update next week (previous call/TP: MP/RM1.46 @ 55% discount to its property RNAV, implying 46% discount to FD SoP of RM2.72). In our last sector strategy (8/7/16), we had highlighted that we are monitoring two key indicators; (i) developers 1H16 sales must meet 40% of full-year targets (before any revisions during the year), and (ii) unbilled sales must provide more than one-year visibility. If majority of developers fail on one or both conditions, we are likely to maintain a negative bias on the sector; however, if both are mostly met, we may upgrade the sector to NEUTRAL. So, we will wait for the results roundup to determine our sector call, and thus, our individual stock calls.

We are also aware that the feel-good sentiment from the upcoming Budget-2017 will soon be translated to positive news flow, which in turn, may separate the weak sector fundamentals from developers’ share price performance. Risks include: (i) weaker/stronger-thanexpected property sales, (ii) margin issues, (iii) changes in real estate policies, and (iv) changes in lending environments.

Source: Kenanga Research - 26 Aug 2016