9M17 CNP of RM60.5m was below our expectation (62%) as we had expected a stronger 2H17 from back-loaded launches and higher recognitions, while 11M17 sales of RM384m was below estimate (43%) due to delayed launches for Monet Residences and Forum 2. No dividends, as expected. Lower FY17-18E earnings by 14-29%, while we expect maiden dividends in FY17. Reiterate OUTPERFORM but on a lower TP of RM1.55 (from RM1.61).

9M17 CNP of RM60.5m was below our expectation at 62% of our FY17 estimate as we had expected a stronger 2H17 from back-loaded launches and higher recognitions. Key revenue drivers were Suria Residence, Forum 1 at Setia Alam, and Jasper Square, Bell Avenue, The Olive and Bell Suites at Sunsuria City.11M17 sales of RM384m made up 43% of our FY17E target of RM0.89b, which we deem as below expectation. We gather from management that launches for Monet Residences terraces and townhouses (GDV:RM583m) will be pushed back by 6-12 months due to delays from the subdivision of land, and Forum 2 (GDV: RM459m) will be delayed to FY18 pending authority’s approvals. No dividends, as expected.

Results highlight. YoY-Ytd, 9M17 top-line was up by a solid 143% due to ongoing projects such as Suria Residence, Forum 1, Jasper Square, Bell Avenue, The Olive and Bell Suites. Group EBIT margin improved to 32% (from 19% in 9M16) as the property segment saw improvements in margins from contributions from Bell Avenue and Jasper, while slightly lower tax rates (-2.4ppt) bumped bottom-line up by 279%. QoQ, CNP also saw substantial improvements, up 77% on improving sales and work progress achieved from on-going developments, and on the back of lower tax rates (of 23.9% vs. 30.0% in 2Q17) as certain expenses were not tax deductible in 2Q17.

Outlook. SUNSURIA has launched Olive at Sunsuria City (GDV: RM284m) and Bell Suites (GDV: RM147m) in FY17, while we expect the Group to launch a total of RM0.5-1.9b in FY17-18E (from RM1.5- 1.7b), post deferring launches for the link and townhouses for Monet Residences (GDV: RM583m) by 6-12 months (in FY18 onwards) due to delays in the subdivision of the land, and Forum 2 (GDV: RM459m) to FY18 pending authority’s approvals, while we have pushed forward FY18 launches from Sunsuria City such as Plot 6 serviced apartment (GDV:RM228m) and Plot 2A mixed commercial development (GDV:RM551m) to FY19 onwards. (refer overleaf).

Lower FY17-18E by 14-29% to RM84.2-111.9m post deferring launches for the link and townhouses for Monet Residences (GDV: RM583m) and Forum 2 (refer overleaf).

Maintain OUTPERFORM but lower TP to RM1.55 (from RM1.61) based on a wider discount of 38% to our FD SoP of RM2.52 (from 36% SoP discount). We have widened our discount due to the delay in launches affecting FY17-18 earnings. The applied discount is at the thinner end of our small mid-cap developers range of 25-82% due to its higher than average earnings growth. Our TP implies a 2-year average of 12.3x Fwd. PER vs. small-mid cap’s 8.1x which we think is compelling considering that earnings normalization will be over the next 2-3 years, with average 2-year forward earnings growth of 81% vs. small-mid cap peers’ average of 3%.

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

Source: Kenanga Research - 25 Aug 2017