1Q19 CNP of RM172.0m is within expectations, making up 29%/26% of our/consensus full-year estimates. A 6.0 sen dividend was declared as expected. No changes to FY19- 20E earnings. Maintain OUTPERFORM with a lower SoP- driven Target Price of RM3.05 (previously, RM3.35) after factoring potential dilution impact from the proposed rights issuance of Warrants F.

Inline. 1Q19 CNP of RM172.0m is within expectations, making up 29%/26% of our/consensus full-year estimates. A 6.0 sen dividend was declared, inline with our expectation of 12.0 sen for the year.

Results highlight. 1Q19 CNP declined 15% YoYdue to: (i) decline in contribution from its joint-ventures in both its construction and property segments which recorded lower pre-tax profit by 37% and 23%, respectively. That aside, its associate also registered significantly lower contribution (-38%) without SPLASH. QoQ, its 1Q19 CNP dropped by 15%, are also due to similar reasons above.

Briefing highlights. In anticipation of a slower year ahead, management is now competing in the building space, targeting both private and government building works. Recently, they bagged RM900.0m worth of building works to construct high-rise residential and additional works from PNB118. As for its property division, they are maintaining a sales target of RM4.0b backed by local launches, i.e. Gamuda Cove, Gamuda Gardens, Twentyfive.7, albeit registering only c.RM600.0m worth of sales in 1Q19.

Corporate proposals. On a separate announcement, they proposed: (i) rights issuance of warrants at 1 warrants F for every 4 shares held at an issue price of RM0.25 with the potential of raising funds up to RM189.9m, and (ii) dividend reinvestment. We opine that its proposed corporate exercise would be constructive for its business as it gives management the ability to raise cash for development projects, and better cash flow management for working capital needs with minimal dilution impact in the near term.

Earnings unchanged. Post results, no changes to our FY19-20E earnings.

Maintain OUTPERFORM. We revised our SoP-driven Target Price downwards to RM3.05 (vs. RM3.35 previously), as we have factored in the potential dilution impact from its newly proposed rights issuance of Warrants F under the minimum scenario, as we do not expect Warrants E to be converted due to its high exercise price of RM4.05.

Nonetheless, we are still keeping our OUTPEFORM call as we believe the current share price level is still palatable given that it is trading at FY19E FD PER of 11.9x which is below KLCON’s 5-year average of 13.4x coupled with a decent dividend yield of 5.3%.

Risks to our call include: (i) unexpected delay of MRT2 project, (ii) another deadlock in SPLASH takeover deal, (iii) higher-than-expected input costs, and (iv) lower-than-expected property sales.

Source: Kenanga Research - 17 Dec 2018