1H19 CNP of RM108.8m and corresponding sales of RM532m came broadly within expectations. No dividends were declared, as expected. Earnings estimates maintained but upgrade our call to OUTPERFORM with an unchanged TP of RM0.835.

Broadly within. 1H19 CNP* of RM108.8m accounted for 41% of street’s full-year estimate and 31% of ours. However, we deem this as broadly within expectations as we have built in lumpy land sales in our estimates. 1H19 sales of RM532m are at 44% and 43% of management’s (RM1.20b) and our (RM1.25b) respective FY19 targets. Again, we deem this as broadly in-line due to timing of new launches, which are mainly in 2H19. No dividends were declared, as expected.

Results’ highlights. QoQ, 2Q19 CNP grew 148% primarily driven by its overseas project as they received partial settlements of Conservatory and Aurora, Melbourne. Its international projects makes up 76% of its 2Q19 revenue. despite having no land transactions this quarter. YoY, 1H19 revenue fell by 56% due to the absence of land sale gain compared to land sales gain of c.RM200.0m back in 1H18. Nonetheless, its net gearing eased to 0.43x compared to 0.57x in 1H18 thanks to management’s relentless effort in disposing non-core assets coupled with active clearance of inventories which was lowered from RM695.3m to RM628.8m.

RM1.20b launches on track, management is looking to launch another RM0.9b worth of projects in 2H19 which we believe would help achieve our sales target of RM1.25b given that they are also actively clearing their completed inventories of RM719.6m (market value); but note that the bulk of new launches are in 4Q19. Net gearing is expected to drop to 0.40x by end-FY19 thanks to the divestments and remaining settlements of Aurora and Conservatory. In terms of land banking, the group is looking towards niche parcels of land with quick turnaround time span in matured areas.

No changes to earnings. Unbilled sales of RM2.6b provide close to 2- year earnings visibility.

Upgrade to OUTPERFORM with an unchanged TP of RM0.835. Our TP is based on an unchanged 81% discount (trough levels) to its FD SoP of RM4.45 which is the steepest discount ascribed for property developers under our coverage.

Risks to our call include: (i) weaker-than-expected property sales, (ii) margin fluctuations, (iii) changes in real estate policies, and (iv) changes in lending environment.

Source: Kenanga Research - 29 Aug 2019