FY19 CNP of RM659.6m is within our, but below consensus, estimate, while sales of RM1.93b is close to our FY19 target. The 3.0 sen dividend is lower compared to our expectation of 5.0 sen. Introduced FY21E CNP of RM693m. Reiterate OP with an unchanged TP of RM1.65.

Within our, but below consensus, estimate. FY19 CNP* of RM659.6m came in-line with our expectation (98%), but below consensus (91%), full-year estimate. We believe that consensus could be slightly optimistic with their sales assumptions of South Beach project. FY19 sales of RM1.93b (Malaysia: 58%, China: 39%, Singapore: 3%**) is close to our FY19E target of RM2.05b. The 3.0 sen dividend declared was lower compared to our full-year expectation of 5.0 sen.

Results’ highlights. QoQ, 4Q19 revenue registered marginal growth of 2%, but CNP fell by 31%. This is mainly due to: (i) lower net interest income (-27%), and (ii) lower sales contribution from its jointly controlled entity project, i.e. South Beach, which recorded better sales in 3Q19. YoY, FY19 CNP was flattish amid 21% decline in revenue. This is mainly attributable to the improved group EBIT margin of 38.9% (+7.2ppt) thanks to richer margins from its China projects and JCE/associate contributions recovering sharply to RM105m (FY18: - RM31m) due to sale of units at South Beach and PJ Midtown projects. Net gearing remained stable at 0.52x (2Q19: 0.52x).

Overseas projects still a key driver. Going forward, the group is looking to launch RM1.7b/RMB2.9b worth of projects in Xiamen but turning cautious due to the on-going trade war. As for local projects, the group remains cautiously optimistic and is focused on inventory clearing. Positively, its inventories came off from RM2.17b (at cost) to RM2.05b thanks to various campaigns like House Ownership Campaign.

Earnings unchanged. Post results, there are no changes to FY20E earnings, and we introduce our FY21E earnings of RM693m. Unbilled sales of RM610m remain low with less than 1-year visibility.

Reiterate OUTPERFORM with an unchanged TP of RM1.65 based on 69% discount to its FD RNAV of RM5.31. The applied discount is at -1.5SD or the lower-end of our universe’s valuations range (-1.0SD to trough levels). At current price, the stock is trading at a low of 10.0x Fwd. PER and 0.34x Fwd. PBV; the cheapest among the big players in our universe.

Risks include: (i) weaker-than-expected property sales, (ii) margin compressions, (iii) changes in real estate policies/lending environments, and (vi) M&A/privatisation/cash-calls.

Source: Kenanga Research - 30 Aug 2019