1H16 core net profit of RM94.9m came in within our expectation, accounting for 48% of full-year estimate. No dividend declared as expected. No sales figures disclosed. Property outlook in Johor remains challenging due to oversupply issue of high-rises from Chinese developers. Call/TP UNDER REVIEW, previously UNDERPERFORM with Target Price of RM0.99 based on 5.0x FY17E FD PER.

Within expectation. 1H16 CNP of RM94.9m came in within our expectation, making up 48% of our full-year estimate. No sales figures disclosed. No dividend declared as expected.

Results review. 1H16 CNP plunged by 37% YoY underpinned by the slump in revenue (-33%, YoY) due to lower progressive billings recorded as a result of slow property sales. QoQ, 2Q16 CNP improved by 19% despite 9% decrease in revenue, underpinned by the recovery in property margins coupled with higher other income (+55%, QoQ) coming from rental arising from the leasing of vacant land and unsold inventories.

Outlook. We do not expect the challenging operating environment in the property sector to see any improvement in the near-term, especially in Johor due to the oversupply situation of high-rise projects coming from Chinese developers. We are becoming more concerned on KSL’s move in targeting the highend segment away from affordable housing in Johor, as we believe that the slow demand for high-rise projects in Johor will persist.

UNDER REVIEW. We are placing our call/TP under review pending our sector update (previous call/TP:UP/TP@RM0.99 based on 5x FY17 FD PER). 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 have 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 round-up 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.

Upside risks include lower-than-expected sales and administrative costs, positive real estate policies, improvements in lending environments, and resumption in dividend payment

Source: Kenanga Research - 29 Aug 2016