1Q19 CNP of RM60m and corresponding sales RM171m are broadly within expectations. No dividend as expected. The group has lined up c.RM1.3b worth of new launches for FY19 whilst continuing its inventory clearing efforts. No changes to earnings. Maintain MARKET PERFORM with an unchanged TP of RM2.15.

Broadly within. 1Q19 CNP of RM60m is broadly within expectations at 16% of street’s full-year estimate and 17% of ours, as we expect billings to pick up momentum in the coming quarters. The quarter’s sales stood at RM171m or 12% of our FY19E target of RM1.32b, but we also deem this as broadly on track due to timing of the bulk of their new launches, which will commence in 2H19. No dividends, as expected.

Results’ highlights. QoQ, 1Q19 CNP was down by 34% largely due to last quarter’s high base when there was recognition of en bloc sales (combined value of RM254m). YoY, 1Q19 CNP grew sharply by 85% with EBIT margin at a more normalized level of 32.9% (1Q18: 27.9%) and there were also more advance project billing stages at this juncture compared to 1Q18; billings are mainly from United Point, Sentul Point, South Link and inventory clearing efforts. The group remains in a strong net cash position of 0.13x gearing.

Outlook. Upcoming new launches worth GDV of RM1.29b are; (i) Goodwood Residence@ Bangsar South (GDV RM600m) which will be launched by mid-year, pending APDL, (ii) Aspen Green Residence @ Sri Petaling (GDV of RM1b but will only be launching RM250m this year) which is slated for launch mid-year, pending APDL, (iii) Bandar Tun Razak, Cheras (GDV RM300m) targeted for 4Q19 launch, and (iv) UOA Business Park Phase II (RM140m) of which the group will start construction first. The remaining part of the year will be driven by on- going projects and inventory clearing efforts.

No changes to earnings. Unbilled sales of RM1.40b provide slightly more than 1-year’s visibility.

Maintain MARKET PERFORM with an unchanged TP of RM2.15 based on RNAV discount of 50% @ -1.0SD to its FD RNAV of RM4.31. The applied discount level is at the better end of our universe’s range (- 2.0SD to -1.0SD). We think our valuation level is fair after considering the challenging sector landscape and its defensive attributes such as: (i) pure KL exposure with connectivity plays, (ii) high margins, (iii) net cash position, and (iv) more prominent recurring income streams from its hospitality and property investment assets. The group has more defensive attributes than other developers but is still considered slightly riskier than MREITs and thus, our TP implies 6.5% yield which we believe offers a fair premium over sizeable MREITs (net yield of 5.2%).

Risks include weaker/stronger-than-expected property sales, margin fluctuations, and changes in real estate policies and/or lending environments.

Source: Kenanga Research - 30 May 2019