9MFY19 CNP of RM91.4m fell 38% YoY, representing 57%/58% of our/consensus full-year forecasts. No dividend was declared. We are cutting our net profit forecasts by 25% for FY19 and 29% for FY20. Downgrade to MARKET PERFORM with a lower TP of RM0.750 (from RM1.00) as we switch to the adjusted P/BV valuation methodology.

Below expectations. 9MFY19 CNP of RM91.4m is below expectations, accounting for 57%/58% of our/consensus full-year forecasts. The shortfall could be attributed to slower progress billings and lower-than-expected property sales. No dividend was declared as expected.

Results’ highlights. YoY, 9MFY19 CNP dropped 38% on the back of a 20% decline in turnover. Bottom-line was also dampened by a higher effective tax rate of 26% (versus 22%). QoQ, 3QFY19 CNP was up 35% mainly due to an absence of perpetual securities’ coupon payment (which dragged down 2QFY19 by RM27.1m).

On track to meet FY19 sales target of RM1.5b. The Group has secured new property sales of RM1.136b in the first nine months, or 76% of the full-year internal target. Management will be focussing on the affordable homes segment (with selling price of below RM700k), which accounts for 81% of the full-year sales target. Unbilled secured sales stood at RM1.7b as of end-Sep 2019, which would provide earnings visibility going forward.

Earnings cuts. We have reduced our forward earnings to RM120m (- 25%) for FY19 and RM128m (-29%) for FY20 after scaling back our assumptions on progress billings and sales projections.

Downgrade to MARKET PERFORM with a lower TP of RM0.750 (from RM1.00). Our SoP valuation (see table overleaf) – which is based on the P/BV valuation method (versus the RNAV method previously) - represents a better gauge on the trough valuations of property stocks amid the prevailing market down-cycle. We have applied a P/BV of 0.53x (minus 1SD below its 3-year historical mean) on the BV of the property business segment (after imputing a 40% discount to its latest available inventory level of completed properties).

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

Source: Kenanga Research - 28 Nov 2019