FY17 CNP of RM297m came below expectations (84%/88% of market/ours). Positively, FY18 sales were at RM1.80b which is spot-on with management’s and our target. FY17 proposed dividend is also inline at 6.5 sen. FY18E sales target is set at RM1.80b. Reduce FY18E CNP by 11%. Maintain OUTPERFORM with a lower TP of RM1.50.

Below expectations. FY17 CNP of RM297m came below expectations at 84% and 88% of consensus and estimates, respectively. The negative variance is from the weaker-than-expected development margins, billings and borrowings financing costs. Note that our CNP excludes the financing cost arising from the Perpetual Sukuk and Securities (RM59.1m) and RM7.9m one-off gain on disposal. We are unclear if consensus’ estimates include or exclude these factors. However, we take the stance that the net profit attributable to ordinary equity holders should be the key profit line. Sales over FY17 was RM1.80b which is spot-on vs. both management’s and our target; key drivers were strong urban affordable housing products (RM500k/unit and below) which made up 45% of sales. Proposed dividend of 6.5 sen for FY17 is within expectation at 96% of our estimate.

Hit by financing cost. QoQ, 4Q17 CNP slid by 3% mainly due to a sharp rise in borrowings cost to RM6.0m from last quarter’s RM1.6m due to MFRS139. 4Q17 also incurred Perpetual Securities financing cost which is 23% QoQ higher than that of the Perpetual Sukuk. YoY, FY17 CNP declined by 14% on the back of a slightly weaker top-line (- 1%) due to flattish sales from the past while this year also incur maiden Perpetual Sukuk financing cost. Positively, the company remains in a strong net cash position of 0.13x.

FY18 sales target set at RM1.80b, on the back of RM2.21b worth of new launches and active efforts to clear RM1.8b worth of unsold WIPs/inventories. The target is achievable as 74% are homes priced below RM500k/unit. We still expect more land banking news in the near term given their light balance sheet; emphasis is on Klang Valley mass- market driven type projects to be secured over the next 6–12 months and we have built-in a GDV replenishment assumption of RM2.2b into our FD SoP.

Reduce FY18E CNP by 11% as we tone down our margins and billings assumptions while adjusting for higher financing costs. We also introduced FY19 estimates. Our FY18-19E sales targets are maintained at RM1.80-1.82b. Unbilled sales of RM2.71b provide close to one year’s visibility.

Maintain OUTPERFORM with a lower TP of RM1.50 (from RM1.60) based on a wider property RNAV discount of 55% (from 52%) due to updated historical average range – this implies a SoP discount of 47% to its FD RNAV RM2.85. Recently, the stock was severely bashed down. At current price, its implied yields are attractive at around 5.4% which is attractive vs. big-cap peer’s average of 2.9%. Although sector challenges persist, we laud the company for its ability to adapt to the mass housing market segment and is confident on the sustainability of their sales trajectory.

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 - 01 Mar 2018