FY18 CNP of RM127.9m came within our, but above consensus, expectations, making up 105%/109% of respective full-year estimates. A 1.71 sen dividend declared was a surprise for us, as we did not expect any dividend for the year. No changes to FY19E earnings, introduces FY20E NP of RM154.0m. Downgrade from OP to MP with an unchanged SoP-driven TP of RM0.850.

Within our, above consensus. FY18 CNP of RM127.9m came within our, but above consensus, expectations, making up 105%/109% of respective full-year estimates. Items that we stripped off/add back to derive our CNP are as follows: fair value gain on investment properties (-RM141.3m), fair value loss of a joint-venture (+RM30.8m), impairment charge on acquisition of Subang Skypark (+RM82.4m), unrealised forex loss (+RM4.0m) and deferred tax arising from RPGT (+RM40.1m). We believe that consensus could be slightly more conservative on their construction billings recognition. A 1.71 sen dividend declared was a surprise for us, as we did not expect any dividend for the year.

Results highlight. Its FY18 revenue registered an impressive growth of 22%, YoY. The growth in revenue was mainly driven by its construction and property investment divisions, which registered revenue growth of 35% and 155%, respectively. However, CNP fell 7% underpinned by higher financing cost (+115%) due to the commencement of operations for Paradigm JB. QoQ, its 4Q18 CNP fell 11% despite registering revenue growth of 91% as it was dragged down by: (i) the increase in financing cost (+23%), and (ii) loss contribution from its associates/joint venture and sharp increase in admin/other costs (+426%). On a segmental basis, its construction division saw its EBIT margin compressed to 3% (-4ppt), while its property division registered a loss of RM14.3m compared to profit of RM7.6m in 3Q18 due to impairment on its inventories and undeveloped land.

Outlook. Its outstanding order-book currently stands at c.RM7.3b, providing earnings visibility for the next 2.5-3.0 years. As for its property division, clearance of its inventories of RM865.0m remains a top priority for its management team, and we believe that it would be positive for the company should they be able to clear more than 50% of inventories.

Estimates maintained. Post results, no changes to our FY19E earnings for now, and we introduce FY20E NP of RM154.0m.

Downgrade to MARKET PERFORM (from OUTPERFORM) on unchanged SoP-driven Target Price of RM0.850 given the recent run- up in share price. While we remain hopeful to see improvements in its construction division, we believe that the next re-rating catalyst for the stock mainly depends on their de-gearing effort. Our Target Price implies FY19E PER of 8.1x, which we believe is fair given its balance sheet risk (net gearing: 1.1x) due to its high property inventories.

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

Source: Kenanga Research - 01 Mar 2019