9M16 CNP of RM276m was within expectations but sales of RM1.4b is lagging at only 61% of both management’s and our FY16E target of RM2.3b. No dividends as expected. Management has reduced its FY16E sales target to RM1.8b. We are also lowering our FY16-17E earnings, by 3%-5%, respectively, on trimmed FY16E sales targets. Maintain MARKET PERFORM with lower TP of RM1.49.

Within expectations but sales are behind targets. 9M16 CNP of RM276m came within expectations at 72% of consensus’ estimates and 73% of ours. 9M16 sales of RM1.40m was weak as it only made up 61% of both management’s and our FY16E target of RM2.30b. This is largely due to challenges in converting its initial high bookings to SPA sales as securing end-financing continued to be challenging. No dividends, as expected.

Flattish earnings. QoQ, 3Q16 CNP grew 3% to RM91.9m albeit with a 5% decline in revenue due to timing of billings. Nonetheless, gross margin was stable at 26.0% (+0.7ppt) while there were reversals of GST provisions made last year allowing for better EBIT margin (+1.2ppt to 16.7%). YoY, CNP slipped by 3% on the back of a 5% decline in billings, which was partly offset by an improvement in EBIT margin by 1.3% to 16.6% as there was a reduction in sales/marketing cost (-12%) and admin/other expenses (-24%) as the group embarked on stricter cost-control measures.

Management’s sales target lowered to RM1.80b from RM2.30b. We believe they are biting the bullet by being prudent with the revision as conversion of booking sales has been extremely challenging this year and they have opted to defer c.RM0.6b worth of launches to FY17. They have also embarked on their “Luxury Made Affordable” products for first-time buyers and the “Lock and Roll” campaign for upgraders; the latter is an innovative deferred financing plan where buyers can ‘lock’ a completed unit with RM10,000 booking fee and ‘roll’ their cash for 24 months. No major launches for 4Q16 while they will commence preview of the final tower of D’saraSentral.

Lowering FY16-17E CNP by 3%-5% as we lower corresponding sales assumptions by 22% each to RM1.8b each. Unbilled sales of RM3.97b provides close to 1.5 years’ visibility.

Maintain MARKET PERFORM with a lower TP of RM1.49 based

on a wider property RNAV discount of 54% (higher than sector average of 50%) or implied SoP discount of 45% to its FD SoP of RM2.72 given its lowered sales target (previous TP of RM1.60 based on 49% property RNAV discount or implied 41% discount to FD SoP of RM2.72). However, its decent unbilled sales visibility and low net gearing of 0.10x (3Q16) lends strength to its ability to sustain its dividend yield of 4.0% (minimum dividend policy of 40%) which is attractive compared to big-cap developers’ average of 3.2%. Note that if the group is unable to meet its full-year target, this may affect its earnings visibility further, which may warrant a further downgrade in our CALL/TP. Risks include: (i) weaker/stronger-than-expected property sales, (ii) margin issues, (iii) changes in real estate policies, and (iv) changes in lending environments.

Source: Kenanga Research - 28 Nov 2016