FY18 CNP of RM591.2m makes up 110%/104% of our/consensus full-year estimates, which is above our, but within consensus, expectations. Property sales of RM1.9b came in a tad higher compared to our RM1.8b expectation. Management declared 2.0 sen cash dividend and share dividend distribution of 1 treasury share for every 100 existing shares held, bringing the full-year dividends to around 7.12 sen, vs. our expected 7.0 sen. No changes to FY19E earnings, introduce FY20E earnings of RM687.4m. Maintain MP with an unchanged SoP-driven TP of RM1.50.

Above expectations. FY18 CNP of RM591.2m makes up 110%/104% of our/consensus full-year estimates, which is above our, but within consensus, expectation. The positive variance stems from an unexpected net interest income of RM61.6m. Property sales of RM1.9b came in a tad higher compared to our expectation of RM1.8b. Management declared 2.0 sen cash dividend and share dividend distribution of 1 treasury share for every 100 existing shares held, bringing the full-year dividends to around 7.12 sen, vs. our expectation of 7.0 sen.

Results highlight. FY18 CNP rose 8%, YoY backed by: i) higher net interest income (+215%), ii) better contribution from its associate/joint ventures (+15%), and iii) lower effective tax of 14% (-3ppt). In terms of divisional performance from its pre-tax level, its quarry division registered the highest growth (+62%) driven by higher selling prices, followed by its property investment division (+37%) due to better contribution from properties like Sunway Geo, The Banjaran, and theme park. QoQ, 4Q18 revenue declined by 5%, CNP grew 26% driven by: i) net interest income of RM85.4m compared to net interest cost of RM3.4m in 3Q18, ii) higher contribution from its associate/joint venture (+70%), and iii) lower minority interest contribution (-23%).

Outlook. Its current unbilled sales stand at RM2.1b providing them at least 2-year visibility. That said, management is looking to launch RM2.0b worth of projects of which 50% are in Singapore. In terms of sales target for the year, management aspires to achieve RM1.3b worth of sales, in-line with our FY19E target of RM1.3b. We also do not rule out any land banking activities to take place for the year. As for its construction division, it has an outstanding order-book of RM6.0b, which is sufficient for 3 years.

Earnings maintained. Post results, we are keeping our FY19E earnings for now, and introduce our FY20E earnings of RM687.4m.

Maintain MP, with unchanged TP of RM1.50, after we factor in the recent downgrade in SUNCON’s TP to RM1.30 (from RM1.65). Currently, we are comfortable with our valuations as follows; (i) applied property RNAV discount of 64% that is close to the sector average of 68%, (ii) premium valuation of 25.0x Fwd. PER to its healthcare division, and (iii) 11.0x FY19E PER to its construction division, highest multiple ascribed for the construction sector.

Risks include: Weaker/higher-than-expected property sales and construction replenishment, higher/lower-than-expected administrative costs, negative real estate policies, and tighter lending environment.

Source: Kenanga Research - 01 Mar 2019