9M17 set of results was below expectations, accounting for 59%/53% of our and streets’ full-year estimates. Sales of RM125.2m are also behind our and management’s target of RM273.4m and RM500.0m, respectively. Declared dividend of 2.0 sen is below our full-year expectations of 2.5 sen. Currently, we place our earnings estimate, recommendation and TP UNDER REVIEW (previously, MP; TP: RM1.10), pending an analysts’ briefing update.

Below expectations. 9M17 NP of RM51.3m was disappointing, which only made up 59%/53% of our/streets’ full-year expectations. 9M17 sales of RM125.2m are lagging behind our and management’s FY17 target of RM273.4m and RM500.0m, respectively. The disappointment in earnings was mainly due to lower-than-expected revenue recognition from its on-going projects and some compression in margins driven by higher sales and marketing activities, while low sales was due to the lack of new launches. The 2.0 sen dividend declared is also below our full-year expectation of 2.5 sen, as we do not expect any dividends in 4Q17.

Results highlight. 9M17 NP registered a sharp decline of 42% on the back of the 32% decrease in revenue, coupled with compression in margins, whereby its pre-tax margins are down to 22%(-4ppt). The decline in revenue was mainly driven by slower progressive billings registered, coupled with several of on- going projects already at the tail end of construction cycle. QoQ, 3Q17 earnings decreased by 39% with revenue seeing a decline of 28% due to similar reasons as above. Positively, its net gearing saw further improvement, which came down to 0.32x from 0.40x previously.

Outlook. While management still aspires to achieve RM500.0m for FY17 as guided in the previous analyst briefing session, we opine that the target is unlikely to be met due to the timing of its new launches, which is back loaded to 4Q17. Its unbilled sales have hit a new low RM215.6m, lasting them for another two quarters.

Earnings. Our FY17-18E earnings are currently under review with a downside bias pending its upcoming analysts’ briefing which will be held on 18th Jan 2017.

UNDER REVIEW. We are placing our recommendation and Target Price UNDER REVIEW (previously MP, TP: RM1.10), pending its upcoming analysts’ briefing.

Risks to our call includes: (i) Weaker-than-expected property sales, (ii) Higher-than-expected sales and administrative costs, (iii) Negative real estate policies, (iv) Tighter lending environments, and (v) Higher-than-expected dividend pay-out.

Source: Kenanga Research - 18 Jan 2017