We visited The View Residences, located near Sultan Abdul Aziz Shah Golf & Country Club and felt encouraged by management’s intention to offer better sales package, with a re-launching in 2H19. However, we are less convinced of their take-up target of 40% by FY19 due to the overall challenging property market and the previous poor response. No changes to FY19-20E earnings. Maintain UP with unchanged TP of RM0.785.

Poor response earlier for The View Residence. The View Residences is a condominium development project located near Sultan Abdul Aziz Shah Golf & Country Club, Shah Alam, on 5.25 acres of leasehold land. The project comprises 3 blocks of 15-storey high condominium, totaling 315 units of residential units and 5 units of retail shops, with a total estimated GDV of RM271m. It is considered a mid-to-high end project with selling prices of the residential units ranging from RM730k to RM960k per unit (built-up area of 980 sqft to 1,281 sqft and comes with 3 bedrooms and 2 bathrooms), implying price psf of c.RM750. While the project was made available for booking in 4Q17, no construction work has started yet as bookings were not enough to begin construction. Based on our understanding, MAGNA will only start construction once they achieve bookings of at least 30%. Currently, bookings are only at c.10%. We believe the poor response could be due to its higher selling price (c.RM750 psf) vs. surrounding similar developments such as Emira Residence and Stellar Residence at RM600-700 psf.

Repackage and re-launch. Apart from the high selling price, management has stated that another reason for the poor response was mainly due to poor marketing efforts by its previous marketing agency. The group has now engaged another marketing agency and aims to aggressively promote The View Residences in 2H19 by offering better sales package in hopes of encouraging better response from the market. Currently, sales package offered includes free legal fees for SPA, loan as well as disbursement, and also sales rebate of 10%. While they are still working on refining the sales package, some proposed ideas include offering higher sales rebate and providing free vouchers for interior designs.

Ambitious take-up target of 40%. Through the repackaging, the group aims to achieve 40% take-up in FY19 for The View Residences. After considering the potential additional sales rebates, we reckon that the net selling price may range between c.RM600-650 psf. While we are encouraged to see management taking effort to repackage the products, we believe that it may be tough to achieve 40% take-up rate target by FY19 given the overall challenging property market, especially for properties priced closer to RM1m/unit. Furthermore, re-launch of the project will only happen in 2H19 and conversion of bookings into sales may spill over to FY20.

Maintain earnings. Post visit, we make no changes to our FY19-20E earnings as we already did not factor much earnings contribution from this project for FY19.

Maintain UNDERPERFORM with Target Price of RM0.785. Our TP is based on property RNAV discount of 70%, which implies a 60% discount to its FD SoP of RM1.94. Our implied SoP discount is at the historical trough level due to volatility in its earnings as shown in recent quarterly results.

Risks to our call include: higher-than-expected margins/property sales, lower-than-expected administrative costs, changes in real estate policies, and changes in lending environment.

Source: Kenanga Research - 11 Apr 2019