KSL’s 1H17 CNP of RM96.6m is within our expectations, making up 46% of our full-year estimates. No dividends declared as expected. Ceasing coverage on the stock due to rationalization of our coverage universe. Previous recommendation as follows: MARKET PERFORM; TP: RM1.30.

Inline. 1H17 Core Net Profit (CNP) of RM96.6m is within our expectations, making up 46% of our full-year estimates. No dividends declared as expected.

Results highlight. YoY, its 1H17 CNP registered a marginal growth of 2% on the back of revenue growth of 5%. Its revenue growth is mainly driven by its property development division, which registered 6% growth in revenue while the other divisions like property investment and car park operations were flattish or registered marginal decline of 1%.

QoQ, its 2Q17 CNP decreased by 22% underpinned by the slump in revenue (-16%), coupled with the compression in pre-tax margins of 4ppt to 38%. While its other divisions, i.e. property investment and car park operations registered growth in revenue of 8% and 1%, respectively, its property division’s revenue saw a sharp decline of 24% due to lower progressive billings.

Outlook. We are conservative on KSL’s ability to sell high-rise products in Johor due to the stiff competition and oversupply situation due to the Chinese developers. However, KSL had proven otherwise and performed better than what we had earlier expected, and we believe that KSL should be able to sustain its performance if they shift their focus into the landed properties segment in Johor, which commands resilient demand as compared to high-rises.

Post results, there are no changes to our FY17-18E core earnings.

Cease Coverage. We officially cease coverage on the stock due to rationalization of our coverage universe. Our last recommendation for KSL is MARKET PERFORM with our last Target Price at RM1.30 with discount of 82% on its RNAV of RM7.07.

Source: Kenanga Research - 29 Aug 2017