9M18 CNP of RM77.0m came in above our expectation (91%) as we may have been too conservative on 2H18 recognitions. However, 9M18 sales of RM236m are below, at 61% due to sluggish sales YTD. No dividends, as expected. We lower FY18-19E sales by 12-8%, but increase CNP by 14-4% to RM96-112m on increased recognitions assumptions from ongoing projects. Maintain OUTPERFORM and TP of RM1.10.

9M18 CNP of RM77.0m came in above expectations at 91% of our FY18 estimate. No consensus is available. We believe the deviation from our estimate was due to stronger-than-expected billings with topline coming in at 91% of our estimates as we may have been overly conservative on recognitions in 2H18 in light of tough property market conditions and weak sales in 6M18 (RM0.19b, 26% of our previous FY18 estimate of RM0.74b). 9M18 sales of RM0.24b came in below at 61% of our FY18 estimate of RM0.39b with key sales drivers being Monet Lily and The Olive, while contributions from Jasper have declined. No dividends, as expected.

Results highlight. YoY, top-line was up by 23% on contributions from Sunsuria City projects, namely The Olive condominium, Bell Suites SOHO and Monet Lily 2-storey terrace homes, which also allowed EBIT margin to improve by +4.2ppt to 36%. All in, CNP was up by 27% to RM77m, aided by a lower effective tax rate of 21% (vs. 26%) due to an over-provision of taxation in 9M17. QoQ, top-line was down by 22% as older projects Bell Avenue and Jasper Square are awaiting authorities’ clearance before handover of vacant possession, but this shortfall was partially offset by The Olive, Bell Suites SOHO and Monet Lily. Marginally better EBIT margins from recent projects (+2.8ppt) and lower effective tax rates of 18% (vs. 23% in 2Q18) helped to soften the blow, causing bottom-line to decline by 16%.

Outlook. Upcoming launches will mostly cater to the affordable highrise or mid-market landed residentials, priced mostly below RM800k/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.

Increase FY18-19E CNP by 14-4% to RM96-112m. We lower our FY18-19E sales by 12-8% to RM0.34-0.53b (from RM0.39-0.58b) as sales have been sluggish, mainly at Jasper and Forum 2. However, we increase our FY18-19E CNP by 14-4% to RM96-112m as we up our recognitions for projects such as Bell Suites SOHO, and Monet Lily and The Olive. We do not expect any dividends for now. Unbilled sales of RM330m provide 1-year visibility.

Maintain OUTPERFORM on an unchanged TP of RM1.10. Our TP is based on an unchanged property RNAV discount of 60%, which implies a SoP discount of 54% to our FD SoP of RM2.39. Our TP implies an average FY18-19E PER of 8.5x which is decent considering better earnings growth YoY (+11% on FY18-19 average) and despite weaker sales which we have accounted for, vs. small-mid-cap peers’ average of 11.1x Fwd. PER and average earnings growth of 2%. We are comfortable with our call as SUNSURIA has been sold down heavily YTD (-25%) vs. KLPRP (-12%) as well as small-mid-cap peers (-18%) and we believe we have also priced in most foreseeable negatives.

Source: Kenanga Research - 28 Aug 2018