1H19 CNP of RM96.8m came in above our expectations at 107% of full-year estimate due to our overly bearish billings assumptions and lumpy recognition this quarter from completion of commercial asset Jasper Square, in line with MFRS 15. Sales came in within at 47%. We increase FY19- 20E earnings by 25-8% to RM113-124m on stronger recognitions in 2H19. Maintain OP and TP of RM0.760.

1H19 CNP of RM96.8m exceeded our expectation at 107% of FY19 estimate. No consensus is available. We believe the deviation from our estimates is due to our overly bearish billing assumptions on the slow 1Q19 performance while we also noted that earnings were also lumpier this quarter due to the adoption of MFRS 15* as Jasper Square was completed. As a result, top-line came in at 106% of our estimate. However, 1H19 sales of RM186m came in within, at 47% of our FY19 estimate of RM0.40b with key sales drivers being Forum and Monet Springtime. No dividends were proposed, as expected

*MFRS 15 implies that revenue from commercial property development projects, which was previously progressively recognised over time, will be recognised based on completion.

Results’ highlight. YoY-Ytd, top-line was up by 184% mainly due to a lumpy recognition from Jasper Square (due to MFRS 15 being recognised this quarter), as well as other projects such as The Olive, Bell Suites SOHO, Monet Lily, Monet Springtime, Monet Garden and Forum 2 SOHO. PBT margin was also significantly stronger at 47% (vs. 10%) due to a better product mix as commercial developments tend to command better margins vis-à-vis residential developments. This cascaded straight to bottom-line, which soared back into the black to RM96.8m (from CNL of RM1.5m). QoQ, 2Q19 top-line was up by 200% due to similar reasons mentioned above which also led to strong PBT margin of 52% (vs. 33%). This coupled with a normalised tax rate of 26% (vs. 54% previously), translated to strong CNP growth of 1,650% to RM91.6m (from RM5.2m).

Outlook. Upcoming launches will mostly cater to the affordable high-rise or mid-market landed residential, priced mostly below RM800k/unit from Sunsuria City. The bulk of FY19E sales hinges on Monet Residences (GDV: RM994m) at Sunsuria City, and Forum 2 (GDV: RM893m), as well as other projects including Tangerine (GDV: RM242m) and Giverny Walk (GDV: RM67m). We believe the Group will be able to aggressively land bank going forward due to its light balance sheet.

Increase FY19-20E by 25-8% to RM113-124m post increasing our recognitions in FY19 for Jasper Square and Monet Residences projects, and in FY20 for Monet Residences; as we may have been too conservative with our recognition estimates previously. However, we make no changes to our FY19-20E sales target of RM0.40b each as sales is on track.

Maintain OUTPERFORM with an unchanged Target Price of RM0.760 on a property RNAV discount of 75% implying a SoP discount of 68% on an unchanged FD SoP RNAV of RM2.34. Our discount is pegged to -1.25SD level to account for the potential EPS dilution arising from the placement. However, we are comfortable with our call on SUNSURIA as we have priced in most foreseeable risks for now while our TP implies a FY19E PER of 6.0x, which is below small-mid cap peers’ average Fwd. PER of 8.6x. We would re-look to upgrade our valuations should the placement prove not as dilutive as expected or results in EPS enhancement going forward.

Risks include: (i) weaker-than-expected property sales, (ii) higher thanexpected sales/administrative and finance costs (i.e. margin fluctuations), (iii) changes in real estate policies, and (iv) changes in lending environment.

Source: Kenanga Research - 31 May 2019