FY17 CNP of RM6.7m came in above expectations, accounting for >8.0x of our full-year expectations, while exceeding consensus by 22%. No dividends declared. No changes to FY18E CNP, we introduce FY19E CNP of RM12.0m. Maintain MARKET PERFORM with unchanged Target Price of RM1.25.

Above expectations. FY17 CNP of RM6.7m came in above expectations, accounting for >8.0x of our full-year expectations, while exceeding consensus by 22%. The positive variance is due to unexpected sales of inventories from its previous projects, i.e. The Istana in Melbourne, Australia. No dividend declared as expected.

Results highlight. FY17 CNP declined by 15% underpinned by: (i) drop in revenue (-29%), and (ii) provisioning of LAD charges due to the delays in handing over its residential project in Jalan Kuching. QoQ, it registered 4Q17 CNP of RM4.9m vis-à-vis 3Q17 CNL of RM4.4m despite revenue declining by 79%. The profitability is driven by the sales of remaining inventories from its previous projects, i.e. The Istana, Desa Mentari commercial project, Jalan Kuching residential project.

Outlook. Its unbilled sales stand at RM40.0m with a year’s earnings visibility. We believe that longer-term earnings should be supported by its Shah Alam and Kepong projects, coupled with its existing inventory of c.RM200.0m at Boulevard Business Park, Jalan Kuching and Desa Mentari, Jalan Kelang Lama. That said, we also believe that earnings could be boosted should MAGNA is able monetize its 2.6 acres of land along Jalan Ampang valued at c.RM400m, which we have not imputed into our estimates.

FY18E CNP unchanged. No changes to our FY18E CNP, introduce FY19E CNP of RM12.0m.

Maintain MARKET PERFORM, with unchanged Target Price of RM1.25. Our FD RNAV per share of RM2.94 is driven by 11% WACC, 15% net margin for planned RM2.5b GDV, RM48.0m unbilled sales, and full warrants conversion. Our applied discount of 52% is in line with Klang Valley players’ average of 50%.

Risks to our call include: (i) lower-than-expected margins/property sales, higher-than-expected administrative costs, negative real estate policies, and tighter lending environment.

Source: Kenanga Research - 1 Mar 2018