1H18 CNP of RM51.4m is within our expectation (46%). However, 6M18 sales of RM190m fell short at 26% despite expectations of stronger quarters from FY18 launches. No dividends, as expected. We lower FY18-19E sales by 47- 30% and CNP by 25-37% to RM84-108m. Maintain MARKET PERFORM but lower TP to RM1.15 (from RM1.30), on a higher 54% discount to our FD SoP of RM2.52.

1H18 CNP of RM51.4m is within expectations at 46% of our FY18 estimate. No consensus is available. However, 6M18 sales of RM190m came in below at 26% of our FY18E target of RM0.74b. We expected back-loaded launches and stronger recognitions throughout FY18, which we believe may take longer than expected to materialise due to the tough property market conditions. 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 49% on contributions from Forum 1, Suria Residence, Bell Avenue, Jasper Square, The Olive, Bell Suites SOHO and Monet Lily. EBIT margin improved to 35% (from 30% in 1H17) on commercial projects such as Bell Avenue and Jasper Square, which generally command better margins. As a result, bottomline was up by 80%. QoQ, top-line was up by 25% due to higher recognition for ongoing projects, while EBIT margin was flattish at 35%. All in, CNP was up by 46%.

Outlook. Upcoming launches will mostly cater to the affordable highrise or mid-market landed residentials, priced below RM700k/unit from Sunsuria City. 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.

Lower FY18-19E CNP by 25-37% to RM84-108m on lower sales. In light of the tough property market conditions, we believe sales and launches may be sluggish going forward, and as such we lower our FY18-19E sales target by 47-30% to RM0.39-0.58m. Sales will be driven by projects at Sunsuria City, namely Monet Residences, Provence and Plot 2A as well as Forum 2. We do not expect any dividends for now. Unbilled sales of RM389m provide 1-year visibility.

Maintain MARKET PERFORM but lower TP to RM1.15 (from RM1.30) on a higher property RNAV discount of 60% (from 53%), which implies a SoP discount of 54% (from 48%) to our FD SoP of RM2.52 on expectations of slower sales going forward. Our TP implies an average FY18-19E PER of 9.6x which is decent considering lower sales YoY (-9%) and corresponding FY18-19 average earnings growth of 10%, vs. small-mid cap peers’ average 9.7x Fwd. PER and average earnings growth of -2%. However, we are comfortable with our call as SUNSURIA has been sold down heavily YTD (-15%) vs. KLPRP (-11%) and small mid-cap peers (-12%) and we believe we have also priced in most foreseeable negatives.

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 - 25 May 2018