1H19 CNP of RM280.1m came in line, making up 52%/45% of our/consensus full-year expectations. A 4.6 sen dividend was declared, as expected. Property sales of RM735.0m are also within our FY19 estimate of RM1.3b. No changes to FY19-20E earnings. Maintain MP with unchanged SoP-driven TP of RM1.60.

Within expectations. 1H19 CNP of RM280.1m (excluding disposal gains: RM37.7m, revaluation gains: RM43.6m, and perpetual holders dividend: RM21.5m) came in line, making up 52%/45% of our/consensus full-year expectations. A 4.6 sen dividend declared, as expected. Property sales of RM735.0m are also within our FY19 estimate of RM1.3b.

Results’ highlights. YoY, 1H19 CNP grew 7%, despite revenue coming off by 15% driven by: (i) 1H19 registering net interest income of RM21.6m vs. net interest cost of RM20.4m, and (ii) lower effective tax rate of 4% (-8ppt) due to the reversal of deferred tax. The negative growth in revenue was mainly attributed to all its divisions except for “others” which grew 10% thanks to its medical division. QoQ, 2Q19 CNP grew 14% mainly due to the reversal of deferred tax.

Outlook. Its current unbilled sales stand at RM2.7b 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 our FY19E sales target of RM1.3b is achievable. We also do not rule out land banking activities for the year. As for its construction division, it has an outstanding order-book of RM5.8b, which is sufficient for 3- year’s visibility.

Earnings maintained. No changes to our FY19-20E earnings.

Maintain MP, with unchanged TP of RM1.60. 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 15.1x.

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 - 28 Aug 2019