1Q19 CNP of RM5.2m (4% of FY19E) is below expectation due to the timing of project recognitions, which will be lumpy going forward. 1Q19 sales of RM93m is also below forecast (17%). A share issuance (8% placement) was proposed to fund working capital. We lower FY19-20E CNPs by 32-16% to RM90-114m upon lowering our sales and on slower billings. Maintain OUTPERFORM but on a lower TP of RM0.835 (RM0.860).

1Q19 CNP of RM5.2m came in below our expectations at 4% of our FY19 estimate. No consensus is available. We believe the deviation from our estimates was due to slower-than-expected billings with topline coming in at 15% of our estimate, likely due to the adoption of MFRS15*, while the effective tax rate of 54% of PBT in this quarter was also higher than expected, but we expect this to normalise in coming quarters. 1Q19 sales of RM93m came in below at 17% of our FY19 estimate of RM0.53b with key sales drivers being Forum and Monet Springtime. No dividends, as expected.

*MFRS15 implies that revenue from commercial property development projects, which was previously progressively recognised over time, will be recognised based on completion.

Results highlight. YoY, top-line was up by 67% on contributions from Sunsuria City projects, namely The Olive, Bell Suites SOHO, Monet Lily, Monet Garden and Monet Springtime while EBIT margins remained strong at 34.1% (vs. 1Q18 of 6.3%) on a better product mix. All in, the group managed to squeeze a CNP of RM5.2m despite higher-thanexpected effective tax rate of 50% due to certain expenses that are not tax deductible. QoQ, top-line was down, by 38% on slower progress billings this quarter. This trickled down to bottom-line, which declined by 91% on the back of higher effective tax rate of 54% (vs. 24% ) due to similar reasons mentioned above.

Placement for working capital, which was a surprise, entailing placement of 65m new shares (8% of existing share base) at RM0.655 to Ter Capital Sdn. Bhd (TCSB) raising RM42.6m to be utilised for working capital, namely at the Forum 2 project, while the share placement is expected to be finalised by 2Q19. Considering its flattish earnings growth and light balance sheet, we would have preferred that the group undertake borrowings over a cash-call which creates earning per share dilution. SUNSURIA also announced that it will be increasing its stake in Sunsuria Forum Sdn. Bhd (SFSB) from 51% to 95%, which will be funded via Sunsuria’s entitlement to the proceeds from SFSB’s dividend of RM44.4m. SFSB owns Forum 2 development as well as the already completed Forum 1. However, the net impact to earnings is lower as we expect slower recognitions and sales.

Outlook. Upcoming launches will mostly cater to the affordable high-rise or mid-market landed residentials, priced mostly below RM800k/unit from Sunsuria City. FY19-20E CNPs is reduced by 32-16% post lowering our sales targets to RM0.40-0.40b in FY19-20. (Refer overleaf for details).

Maintain OUTPERFORM but with a lower TP of RM0.835 (from RM0.860) as we increase our share base to account for the potential placement. Our TP is based on an unchanged property RNAV discount of 71%, which implies a SoP discount of 64% to a higher FD SoP of RM2.50 (from RM2.38). Our TP implies a FY19E PER of 8.0x, which is on par with small-mid-cap peers’ average of 8.0x Fwd. PER. We are comfortable with our call as SUNSURIA has been sold down heavily over the past four months (-34%) vs. KLPRP (-5%) while we believe we have also priced in most of the foreseeable negatives.

Source: Kenanga Research - 1 Mar 2019