FY17 CNP of RM90.7m is above our expectation (108%) on stronger billings and better-than-expected margins, while FY17 sales of RM430m are above (108%). No dividends, which is below our expectation. Maintain FY18E earnings and introduce FY19E numbers. We downgrade to MARKET PERFORM and lower our TP to RM1.50 (from RM1.55) on a wider discount of 45% to our FD SoP of RM2.52 due to the absence of maiden dividends.

FY17 CNP of RM90.7m is above expectation at 108% of our FY17 estimate. Key revenue drivers were Suria Residence, Forum 1, Jasper Square, and Bell Avenue. The deviation factors from our estimates were stronger billings and better-than-expected net margin of 23% vs. our forecast of 20% on recognitions for commercial projects, such as Bell Avenue and Jasper Square, which tend to command better margins vs. residential projects. FY17 sales of RM430m also outperformed, making up 108% of our FY17E target of RM400m. However, the absence of dividends disappointed as we had expected maiden FY17 dividends of 2.6 sen in 4Q17.

Results highlight. YoY, FY17 top-line jumped by 92% on contributions from Suria Residence, Forum 1, Jasper Square, and Bell Avenue, while the group EBIT margin improved to 35% (from 28% in FY16) boosted by commercial projects, such as Bell Avenue and Jasper Square, which tend to command better margins, and bumping bottom-line up by 128%. QoQ, top-line declined by 12% due to the lack of new launches. However, EBIT margins improved substantially by +10.9ppt due to similar reasons mentioned above, and on the back of lower tax rates of 14.5% (vs. 23.9% in 3Q17) from deferred taxes. All in, CNP declined by 5%.

Outlook. Upcoming launches will mostly cater to the affordable highrise or mid-market landed residentials, priced below RM700k/unit from Sunsuria City, which should be readily absorbed by the market. The bulk of FY18-19E sales hinges on Monet Residences (GDV: RM994m) at Sunsuria City, and Forum 2 (GDV: RM893m), while other projects include Provence Village SOHO (GDV: RM228m), Plot 2A (GDV: RM250m), Sentul Land (GDV: RM254m), and Ampang SOHO (GDV: RM84m). We believe the Group will be able to aggressively land bank going forward due to its light balance sheet.

Maintain FY18E CNP of RM111.9m and introduce FY19E CNP of RM166.4m. We are targeting FY18-19E sales of RM0.74-0.82b driven mostly by projects at Sunsuria City, namely Monet Residences Provence and Plot 2A as well as Forum 2. We do not expect any dividends in FY18-19 for now, pending further clarity from management. Unbilled sales of RM489m provide 1-year visibility.

Downgrade to MARKET PERFORM on a lower TP of RM1.50 (from RM1.55) based on a wider property RNAV discount of 45% (from 43%) which implies a wider SOP discount of 41% (from 38%) to our FD SoP of RM2.52. Although earnings positively surprised, we were disappointed with the absence of maiden dividend and expect some knee-jerk reaction to the stock considering its stellar YTD performance of +39% vs. the KLPRP index of +8%. Nonetheless, our new TP implies a FY18E PER of 10.7x which is still compelling considering its FY18E sales and earnings growth of 73% and 23%, respectively, vs. small-mid cap peers’ 9x average Fwd. PER and FY18-19E average earnings growth of 14%. We may look to review our call if there are new catalysts, commencement of dividend in FY18 and headline sales surprises.

Source: Kenanga Research - 23 Nov 2017