1Q19 CNP of RM39.6m makes up 27%/36% of our/consensus full- year estimates. It is within our expectation but came in above consensus which we believe could be due to the latter not including land sales assumption. We expect earnings to normalise in coming quarters. No dividends declared as expected. No changes to FY19-20E earnings. Maintain UP with an unchanged SoP-driven TP of RM0.850.

In line. 1Q19 CNP of RM39.6m makes up 27%/36% of our/consensus full-year estimates. It is within our expectation but came in above consensus which we believe could be due to the latter not including land sales assumption. We expect earnings to normalise in coming quarters. No dividends were declared, as expected.

Results’ highlight. 1Q19 CNP remains flat amid 5% YoY decline in revenue, cushioned by its property development and property investment division, which registered growth in operating profit by 334% and 84%, respectively. The growth in property development division was driven by land sale, while its property investment benefited from higher occupancy in Paradigm JB and better rental rates from Bukit Tinggi Shopping mall in Klang. QoQ, 1Q19 revenue decreased by 30% but CNP increased by 75%, driven by sale of undeveloped land.

Outlook. Its outstanding order-book currently stands at c.RM6.0b providing earnings visibility for the next 2.5-3.0 years. The final costs of LRT3 and MRT2 are expected to be finalised soon which if materialised would be a positive factor for its construction division as they can then resume work in full swing.

Estimates maintained. Post results, no changes to our FY19-20E earnings for now. However, we might look to review our estimates post a results’ briefing.

Maintain UNDERPERFORM with an unchanged SoP-driven Target Price of RM0.850, as we believe any potential positives for the stock is already priced in. Our current TP implies FY20E PER of 7.8x, within our ascribed multiple range of 6-11x for contractors. Its implied multiple of 7.8x is at the lower-end of the band, mainly due to our more conservative view on its property division on account of the weak market sentiment.

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

Source: Kenanga Research - 28 May 2019