1Q18 CNP of RM20.8m is broadly within our expectation (19%) as we expect a stronger 2H18 from back-loaded launches and stronger recognitions. 5M18 sales of RM165m is also broadly within at 22%. No dividends, as expected. Maintain FY18E CNP but increase FY19E CNP by 2%. Maintain MARKET PERFORM and TP of RM1.40, on a 45% discount to our FD SoP of RM2.52.

1Q18 CNP of RM20.8m is broadly within expectations at 19% of our FY18 estimates from back-loaded launches and stronger recognitions in coming quarters. No consensus available. 5M18 sales of RM165m are also broadly within, making up 22% of our FY18E target of RM0.74b on back-loaded launches. Key sales drivers are The Olive, and Sunsuria City’s Monet Lily and Bell Suites. No dividends, as expected.

Results highlight. YoY, top-line jumped by 74% on contributions from Forum 1, Suria Residence, Bell Avenue, Jasper Square, The Olive, Sunsuria City’s Bell Suites SOHO and Monet Lily. EBIT margins improved to 35% (from 29% in 1Q17) on commercial projects, such as Bell Avenue and Jasper Square which tend to command better margins. All in, bottom-line increased by 96%. QoQ, while top-line was up 2% post launching of Monet Lily this quarter. However, EBIT margins declined by 10.1ppt due to write backs of certain marketing expenses, while higher tax rates from deferred taxes in 3Q17 caused CNP to decline by 31%.

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 but increase FY19E CNP by 2%. 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. Additionally, we increase FY19E CNP by 2% post accounting for the recent JDA with CI Medini Sdn Bhd, which will contribute in FY19. We do not expect any dividends for now. All in, we are expecting FY18-19E CNP of RM111.9-169.9m. Unbilled sales of RM511m provide 1-year visibility.

Maintain MARKET PERFORM and TP of RM1.40 based on a property RNAV discount of 49%, which implies a SoP discount of 45% to our FD SoP of RM2.52. Our TP implies a FY18E PER of 10.0x which is slightly more compelling considering its FY18E sales and earnings growth of 73% and 23%, respectively, vs. small-mid cap peers’ 8.5x average Fwd. PER and FY18-19E average earnings growth of 8%. We may look to review our call if there are new catalysts, commencement of dividend in FY18 and headline sales surprises.

Risks include: (i) weaker/stronger-than-expected property sales, (ii) lower/higher than expected sales/administrative and finance costs (i.e. margin fluctuations), (iii) changes in real estate policies, and (iv) changes in lending environment.

Source: Kenanga Research - 27 Feb 2018