FY16 CNP of RM808m beat expectations due to quicker Battersea Ph 1 recognition with sales of RM3.82b surpassing both our and management?s targets. Full- year dividend of 20.0 sen also positively surprised. Management?s FY17E sales target is RM4.0b. No significant changes to earnings. Reiterate OUTPERFORM with unchanged TP of RM3.53.

FY16 CNP of RM808m came above expectations, exceeding street?s and our FY16 estimates by 24% and 17%, respectively. This was largely due to higher-than-expected billings from Battersea Ph 1 and lower effective tax rates. Sales also beat expectations at RM3.82b, exceeding management?s and our target of RM3.50b by 9% on higher-than-expected local sales drivers which made up close to 90% of sales; note that 4Q17 sales of RM1.78b made up 47% of full-year sales. Note that the 10-90 scheme only made up c. 20% of sales achieved. Proposed final dividend of 16.0 sen (DRP applicable) brings full-year dividend to 20.0 sen (70% pay-out) which surpassed our estimates by 18%.

Battersea drives 4Q16. QoQ, 4Q16 CNP rose by 217% as its associate project, Battersea Ph 1 partial delivery was felt while revenue billings surged by 40% on partial Parque Melbourne bullet recognition. YoY comparisons are not available due to changes in FYE. The group has completed the iRCPS issuance bringing net gearing down to 0.17x from last quarter?s 0.40x.

Management targets FY17 sales of RM4.0b (+5% YoY), to be driven by RM5.42b worth of new launches, of which c. 10% is likely to be offered under the 10-90 scheme. Interestingly, the 10-90 scheme received better responses for higher-end properties (>RM0.9m/unit) rather than the mid-end ones. The group also noted quality buyers are now emerging after a period of ?wait-and-see? as the mid-end market in Setia Alam are seeing lower loan rejection rates. They expect 77% of FY17E sales to be driven by local projects with the remaining from overseas, including major launches from Exhibition Street, Melbourne (RM1.55b). Furthermore, 44% of launches are in the affordable housing segment while landed units made up 20% while the remaining are largely high-rises and minimal commercial content. 1H17 should also see the remaining deliveries of Battersea Ph 1 and Parque Melbourne.

No significant changes to earnings. We raise our FY17E sales by 14% to RM4.0b while earnings are marginally lowered by 2% after taking into account the faster-than-expected Battersea Ph 1 earnings in FY16. We introduce FY18E sales of RM4.0b with corresponding estimates. Note that FY18 will see no major overseas bullet contributions. Unbilled sales are at RM8.25b or 2-year visibility vs. RM11.1b two years ago.

Maintain OUTPERFORM with unchanged TP of RM3.53 based on 38% discount (slightly above mean levels) to our FD RNAV of RM5.70. Although earnings are expected to be more volatile due to timing of overseas contributors, we note that the group is regaining its footing in the industry given strong FY16 sales performance and higher trajectory for FY17. The stock also offers compelling FY17E yields of 5.5% based on similar 70% pay-out ratio.

Risks include: (i) weaker property sales, (ii) margin fluctuations, (iii) changes in real estate policies and lending environment, (iv) timing of overseas/local billings.

Source: Kenanga Research - 24 Feb 2017