1H17 CNP of RM163m met expectations while sales for the period of RM819m is also on track to meeting our and management’s full-year target. No dividends, as expected. We expect more landbanking news with emphasis on massmarket housing in key urban areas. No changes to earnings. Maintain OUTPERFORM with a higher TP of RM1.70 as we increased our GDV replenishment assumptions.

On track. 1H17 CNP of RM163m met expectations, accounting for 48% of street’s and 46% of our full-year estimates. On the back of RM1.07b worth of launches which are mainly driven by on-going projects, the group chalked up RM819m sales over 1H17 or 46% each of our FY17E target of RM1.80b and management’s minimum target of RM1.78b. We think this is extremely commendable considering that there were no notable new launches in 1H17. No dividends, as expected.

Strong net cash position. QoQ, 2Q17 CNP was up by 25% to RM90m largely due to the absence of the perpetual bond interests, which are incurred semi-annually. YoY, CNP slide by 16%. While revenue was marginally lower (-2% YoY), 1H17 property segment’s pre-tax margin was compressed by 1.6ppt to 17.6% on lower margin product recognition as MAHSING is realising more affordable housing projects, while its plastic segment’s pre-tax margins remained stable at 5.1%. MAHSING is now in a strong net cash position post its RM650m perpetual bond issuance in Apr 2017.

Expect more land banking news, given their light balance sheet. We expect more Klang Valley mass-market driven type projects to be secured. Furthermore, pending is the conclusion of the Titiwangsa land deal issues. We believe that 2H17 launches will exceed that of 1H17. Besides continuous efforts to clear inventories/WIPs, key new launches in 2H17 include M Vertica@Cheras, M Centura@Sentul, iParc@BukitMertajam, Penang, M Aruna@Rawang while also pushing out new phases of on-going projects like Southville (Savanna 2), Southbay (M Vista) and Meridin East (Ph 2 of Fern). These properties are largely affordable residential priced between RM330-600k/unit, which should be very digestible by the market. The group intends to deliver VP on RM637m (+22% YoY) worth of projects in FY17.

No changes to earnings. Unbilled sales of RM3.02b provides more than one year’s visibility.

Slightly higher TP of RM1.70 (from RM1.67) based on an unchanged property RNAV discount of 48% (in-line with big-cap average) or implied SoP discount of 40% to a higher FD RNAV of RM2.85 (+2% increase). We expect more land banking news over the next 6-12 months and thus, we are increasing our GDV replenishment assumptions to RM1.70b from RM0.70b; however, note that our estimates still include the Titiwangsa land GDV (RM650m) which makes up 2.0 sen of our FD SoP. In the meantime, the company offers a dividend yield of 4.3%, which is above big-cap (>RM3b market cap)developers’ average yield of 2.9%. Reiterate OUTPERFORM.

Risks include: (i) weaker-than-expected property sales, (ii) margin issues, (iii) negative real estate policies, and (iv) deterioration in lending environment.

Source: Kenanga Research - 29 Aug 2017