1Q17 CNP of RM43.4m was broadly within expectations. Sales of RM303m is on track to meeting our FY17E target of RM1.42b. No dividends, as expected. FY17E launch pipeline components have changed, but we maintain earnings for now. Reiterate MARKET PERFORM with unchanged TP of RM2.56.

Broadly within. 1Q17 CNP of RM43.4m came broadly within expectations accounting for 12% of street’s and 11% of our FY17E estimates. Expect stronger quarters ahead with 4 project deliveries anticipated for the year. Sales in 1Q17 was RM303m, which met our expectation, coming in at 21% of our FY17E target of RM1.42b. Key drivers were Sentul Point and United Point. No dividends, as expected.

A weak 1Q. QoQ, 1Q17 CNP dropped by 52% on significantly lower property billings as revenue fell by 43% while other operating income softened by 29% as last quarter included some hospitality cost writebacks. YoY, CNP dipped by 55% on slower billings while project margin mix resulted in 11.3ppt EBIT margin compressions to 46.5% from 49.0%. The company remains in a net cash position (0.10x).

Changes to FY17 launch pipeline. Both the last phases of Sentul Point (GDV: RM500m) and United Point (GDV: RM500m) will still be launched this year. However, the group is pushing back the residential component of The Sphere Bangsar South City (RM800m) to another year while they will continue with the redevelopment of the retail component (c. 100k sf NLA). In place of that project, the group is hoping to secure en bloc sales for the nearly completed Desa Commercial Center (RM300m) and will be launching Bandar Tun Razak, Cheras (RM300m) project and the affordable homes in Selayang (RM90m), implying total launch pipeline of RM1.69b for FY17 which not too far off from their earlier guidance of RM1.89b. Note that the group has c. RM1.0b worth of unsold units. Expected project deliveries in FY17 include SouthView, Southbank, Desa Sentul Phase 1 and Suria North Kiara.

No changes to earnings. Unbilled sales of RM1.57b provides between 1-1.5 years’ visibility.

Reiterate MARKET PERFORM with an unchanged TP of RM2.56 based on 36% discount (slightly above +1SD) to its FD RNAV of RM4.00. We are comfortable with our TP as it implies FY17E net yields of 5.9% which we think is a decent spread compared to the less risky sizeable MREITs’ average net yield of 5.1%. While upsides are capped, the stock is worth holding for its yield stability given the company’s defensive nature (pure KL exposure with connectivity plays, high development margins and a strong net cash position).

Risks include weaker/strong-than-expected property sales, margin fluctuations as well as changes in real estate policies and/or lending environments.

Source: Kenanga Research - 23 May 2017