9M18 CNP of RM105.3m is within expectations, accounting for 72% each of our/consensus’ full-year estimates. No dividend declared, as expected. No changes to FY18-19E earnings. Maintain OUTPERFORM on its improving outlook with an unchanged SoP-driven Target Price of RM1.20.

In line. 9M18 CNP of RM105.3m is within expectations, accounting for 72% each of our/consensus’ full-year estimates, respectively. No dividend declared, as expected.

Results highlight. Its 9M18 revenue registered an impressive growth of 20%, YoY, coupled with marginal improvements in operating margin of +0.8ppt to 15.2%. However, its CNP of RM105.3m (after stripping off forex loss of RM4.7m, and disposal gain of RM7.7m) declined by 9% because of: (i) substantial increase in financing cost (+126%) due to the commencement of operation for Paradigm JB, and (ii) loss contribution from associate/joint-venture of RM1.9m vis-à-vis profit contribution of RM17.6m back in 9M17. QoQ, its 3Q18 CNP registered a sharp decrease of 37% underpinned by the drop in revenue of 42%. The sudden drop in revenue is attributable to all its divisions with its property development division registering the sharpest decline (-76%), followed by its construction division (-37%) and property investment (-2%). The decline in property revenue was mainly due to slower property sales, while its construction division registered slower billings from both local and overseas infrastructure projects.

Outlook. Its outstanding order-book currently stands at c.RM7.0b providing earnings visibility for the next 2.5-3.0 years. To recap, they recently bagged RM1.8b worth of construction works for Pavilion Damansara over 38 months. As for its property division, we believe that management’s focus remains on clearing unsold completed property stocks that stand at c.RM600.0m collectively through a re-pricing strategy. That aside, we also expect more land disposals in the near term as part of their de-gearing exercise.

Estimates maintained. Post results, no changes to our FY18-19E earnings for now. However, we might look to review our estimates post briefing.

Maintain OUTPERFORM with an unchanged SoP-driven Target Price of RM1.20 back by improving outlook, especially its construction division, coupled with management’s relentless effort in their de- gearing exercise. Our current TP implies FY19E PER of 10.1x, or just slightly below the highest multiple of 11.0x we ascribed in the sector which is right below KLCON index’s 5-year -1SD levels.

Risks to our call include: (i) lower-than-expected margins/order-book replenishment, and (ii) lower government spending on infrastructure projects.

Source: Kenanga Research - 27 Nov 2018