FY17 CNP of RM106.1m (+17%) beat our/consensus expectations by 32%/18% of respective full-year estimates as the company changes its accounting standards, which saw higher-thanexpected associates profit contribution recognition. Upgrade FY18E CNP by 38%. As such, we increased our TP to RM2.00, as we change our valuation to PER valuation based on 23.5x FY18 EPS (from RM1.80). Upgrade to OP from MP as we see opportunity in the share price weakness with YTD decline of 17%.

FY17 above expectations. FY17 CNP of RM106.1m (+17%) beat expectations by 32%/18% of the full-year estimates as the company adopted accounting standards of “Amendments to MFRS 127, Equity Method in Separate Financial Statements” which saw higher-thanexpected associates profit contribution recognition. An interim and fullyear DPS of 4.0 sen was declared, above expectations (vs expected DPS of 3.0sen).

YoY, FY17 revenue increased by 2% from the stronger performance in Property Management division (+11%) and netted off by the flattish growth in Retailing business division. The positive growth was attributed to the full revenue contribution from the two shopping malls opened in FY16 (in Shah Alam, Selangor and Kota Bharu, Kelantan) and maiden contribution from the opening of a new shopping mall in September 2017 (in Kempas, Johor). Subsequently, FY17 EBIT was higher by 22%, with improved margin by 1.0pp to 5.9% from 4.9% in FY16, attributed to the higher EBIT in both division of Retailing business division (+167%) and Property Management division (+15%), as a result of better marketing and pricing strategies. Excluding the one-off items, CNP increased by 17% to RM106.1m.

QoQ, 4Q17 revenue increased by 12% mainly due to the Christmas season and the year-end school holidays. Subsequently, EBIT surged by 220% as a result of better marketing and pricing strategies. The impairment loss on investment in a subsidiary amounting to RM19.6m, and the gain of RM18.5m on disposal of a shopping mall was recognised for the quarter. Excluding the one-off items, CNP surged 233% to RM40.3m.

Outlook. Management noted that for retailing business, they will continue to employ appropriate marketing and pricing strategies, merchandise assortment reformation, maintaining quality customer service and with operational efficiency efforts to ensure that its core businesses will benefit. At the same time, the company will seek to expand its supermarket business and further expand its online ecommerce presence. For property management services, the company expects the occupancy rate and rental pricing to remain stable and sustainable and will continue to leverage on its competitive strengths to draw customer traffic to its malls so as to continuing maintain its positioning as a shopping destination.

Upgrade FY18E CNP by 38%. We increased our FY18E CNP by 38% on expectation of higher associates’ contribution with the implementation of accounting standards of “Amendments to MFRS 127, Equity Method in Separate Financial Statements”.

Upgrade to OUTPERFORM from MARKET PERFORM with a higher TP of RM2.00 as we change our valuation to PER valuation based on 23.5x FY18 EPS, implying -0.5 SD of its 5-year historical mean PER. (previously, TP of RM1.80 based on 1.3x FY18 BVPS). We like the stocks for its (i) strong brand name with 24 malls in operations all-over Malaysia, (ii) turnaround in its core retailing business which is expected to saw improvement in margin, moving forward, and (iii) strong property management services which recorded EBIT margin at average of 37%.

Risks to our call include: (i) lower-than-expected sales, and (ii) higherthan-expected operating expenses.

Source: Kenanga Research - 1 Mar 2018