1Q19 CNP of RM0.9m came below our expectations, at only 5%, mainly due to the weaker-than-expected property segment earnings. Pending 1Q19 sales information, we reckon sales could be slow as property sector remains challenging. No dividend declared as expected. Post-results, we cut our FY19-20E CNP by 43-40% after lowering both sales target and property segment margin assumptions. Maintain UNDERPERFORM with an unchanged TP of RM1.00.

Below expectations. 1Q19 CNP of RM0.9m came way below our expectation, only accounting for 5% of our full-year estimate. The negative deviation mainly stems from the weaker-than-expected property segment. 1Q19 sales information is pending from management. However, we reckon sales could be slow as the outlook for the property sector remains challenging. No dividend was declared, as expected.

Results highlight. YoY-Ytd, CNP declined by 75% mainly due to: (i) decline in property segment revenue (-43%) from lower property sales, and (ii) lower property segment’s operating margin (-13 ppt) likely due to recognition of lower margin property product. QoQ, 1Q19 CNP declined by 88%, which we reckon could be due to lower-margin property products being sold as CNP margin is only at 4% (vs 4Q18 CNP margin of 37%).

Outlook. For FY19, the group is not targeting any new launches with their focus currently on clearing existing unsold units at Amverton Hill, Sungai Buloh (semi-detached and bungalow units) and Amverton Links, Klang (double-storey houses) projects. Management’s sales target for FY19 is at RM45.2m (RM36.8m from Amverton Hill and RM8.4m from Amverton Links). The group is more inclined to only launch new projects after FY19 given the current weak property market. Potential projects may include double-storey terrace houses at Amverton Hill and a Retirement Village at Amverton Cove, Pulau Carey. Its unbilled sales is estimated to be lower than RM30m, providing less than half year of earnings visibility.

Earnings review. Post results, we cut our FY19-20E CNP by 43-40%, after reducing our sales target by 13-14% to RM34.6-33.7m in view of the weak property market. We also lowered our property margin assumption after considering the low property segment’s operating margin this quarter likely from higher portion of lower-margin property products being sold.

Maintain UNDERPERFORM with an unchanged SoP-driven Target Price of RM1.00 (property RNAV discount of 88%), implying 83% discount to its SoP/share of RM5.88 (partial GDV and partial land bank basis). Our applied discount of 88%, which is already the steepest in our universe, is due to their slow pace in unlocking the value of their Pulau Carey landbank, which forms the bulk of the valuation.

Risks to our call include: (i) stronger-than-expected margins/property sales, and (ii) positive change in government housing policy.

Source: Kenanga Research - 24 May 2019