FY16 CNP of RM347m and full-year sales of RM1.78b were within expectations. Proposed dividends of 6.5 sen were slightly higher than expected. Management targets FY17 sales of RM1.78b and we have a similar target. However, we tone down FY17E CNP by 7% to be conservative with billings progress assumptions. Maintain MARKET PERFORM with unchanged TP of RM1.49 supported by low net gearing (0.02x) and strong dividend yield (4.4%).

FY16 CNP of RM347m was within expectations at 95% of both street?s and our estimates. Full-year sales of RM1.78b met management?s revised target (last quarter) and our estimate of RM1.80b. Key drivers were Lakeville, Southville, Meridin East, M Residence 2 and D?sara Central. Proposed dividend of 6.5 sen on a record-high pay-out of 48% slightly exceeded our estimates of 6.1 sen.

Holding steady. YoY, FY16 revenue declined by 5% on slower billings while PBT moved in tandem (-4%) with EBIT margins holding steady at 16.1%. However, CNP was only marginally lower by 1% as we excluded RM27m cost incurred in 1Q16 relating to the repurchase of convertible bonds and RM5m FV gains this quarter vs. FY15 FV gain of RM30m. QoQ, 4Q16 saw a flattish top-line and lower margin product mix resulting in property segment EBIT margin compression of 1.9ppt to 16.1%. However, CNP was up by 10% due to the absence of perpetual bond interest incurred this quarter.

Management targets FY17 sales of RM1.78b (-21% YoY). FY17 will see RM1.9b worth launches from new phases of on-going launches (M Residence 2, D?sara Central, Lakeville, Southville, Meridin Esat and Southbay City) with the bulk being residential units of which 73% are priced below RM700k/unit. Note that the group also has c.RM1.7b worth of unsold units (on-going and completed). Net gearing has improved to 0.02x from last quarter?s 0.10x, providing the group ample room to land bank. We expect land banking to focus in prime areas of Klang Valley and likely be targeting the affordable market.

Lower FY17E CNP by 7% and introduce FY18E. Although our sales are maintained at RM1.80b each, we have re-timed progress billing assumptions to be conservative. Unbilled sales of RM3.70b provides close to 1.5 years? visibility.

Maintain MARKET PERFORM and TP of RM1.49 based on a property RNAV discount of 54% (higher than sector average of 50%) or implied SoP discount of 45% to its FD SoP of RM2.72. However, its decent unbilled sales visibility and low net gearing of 0.02x (4Q16) lends strength to its ability to sustain its dividend pay-out (minimum dividend policy of 40%) which implies current yields 4.4%, which is attractive compared to big-cap developers? average of 2.8%.

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 - 01 Mar 2017