1Q19 CNP of RM131.2m came in-line, making up 22%/21% of our/consensus full-year expectations. No dividends declared, as expected. However, property sales of RM263.0m came in lower compared to our FY19 estimate of RM1.8b, due to slower sales in the local market and lack of new launches. No dividends declared as expected. Maintained FY19-20E earnings and MP call but raised our SoP-driven TP to RM1.60 (from RM1.55).

Within expectations. 1Q19 CNP of RM131.2m came in-line, making up 22%/21% of our/consensus full-year expectations. No dividends declared, as expected. However, property sales of RM263.0m came in broadly inline compared to our FY19 estimate of RM1.8b, as we expect lumpier sales in next few quarters. No dividends declared as expected.

Results highlight. 1Q19 CNP grew 8%, YoY despite revenue coming off by 14% driven by: (i) increase in associate/JV contributions from an overseas project, and (ii) 1Q19 registering net interest income of RM17.8m vs. net interest cost of RM7.6m. The negative growth in revenue was mainly attributed to its property and construction divisions, which saw revenue decline of 34% and 22%, respectively. QoQ, 1Q19 CNP decreased sharply by 29% attributable to the decline in (i) revenue (18%), (ii) net interest income (-79%), and (iii) lower contribution from associates and JV (-35%). The decline in revenue was mainly due to similar reasons above where the main drag stemmed from its property and construction divisions, which saw revenue decreasing by 57% and 29%, respectively.

Outlook. Its current unbilled sales stand at RM2.2b 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. We believe that they might be able to hit our FY19E sales target of RM1.8b if they launched its Singapore project. 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 RM5.7b, which is sufficient for 3 years’ visibility.

Earnings maintained. While we deem that the results are still within expectations, we reduced our FY19-20E earnings by 10%-4%, respectively following our recent earnings revision in SUNCON and made some minor tweaks for FY20.

Maintain MP, with higher TP of RM1.60, (previously, RM1.55) as we roll forward our valuation base year from FY19E to FY20E for all its divisions. Currently, we are comfortable with our valuations as follows; (i) applied property RNAV discount of 64% that is close to the sector average of 72%, (ii) premium valuation of 25.0x Fwd. PER to its healthcare division, and (iii) 11.0x FY20E PER to its construction division, highest multiple ascribed for the construction sector. Our TP implies FY20E PER of 11.9x, which is above our contractors ascribed multiple of 11.0x, but below our developers’ average of 16.4x.

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 - 23 May 2019