FY19 CNP of RM121.4m came in within our expectation at 95% while sales came in slightly below at 92%. Maintain FY20E CNP of RM133m and introduce FY21E CNP of RM140m driven by property sales of RM0.40b in FY20-21E. Maintain MARKET PERFORM but on a lower TP of RM0.585 (from RM0.760) post switching to PBV valuations.

FY19 CNP of RM121.4m met our expectation at 95% of FY19 estimate. No consensus is available. FY19 sales of RM368m are slightly below our expectation at 92% of estimate of RM400m with key sales drivers being Forum II and Monet Residences. No dividends were proposed, as expected.

Results’ highlights. YoY, FY19 revenue was down by 25% mainly due to the recognition of Forum 1 and Bell Avenue commercial development in 2H18*. FY19 sales were driven by recognition from existing projects namely Sunsuria City projects (The Olive, Bell Suites SOHO & Retails, Monet Lily, Monet Springtime, Monet Garden, Giverny Walk and Tangerine Suites) and Forum II SOHO and Offices in Setia Alam. All in, bottom-line declined by 33% on slightly higher financing cost (+21%) and higher effective tax rate of 35.4% (vs. 22.8%) as certain expenses were not tax deductible. QoQ, top-line was up by 8% mainly driven by Monet Lily and The Olive while higher finance cost (+1797%) and higher effective tax rate (61% vs. 40% previously) due to similar reasons mentioned above caused bottom-line to decrease by 18%.

Outlook. Upcoming launches will mostly cater to the affordable high-rise or mid-market landed residential, priced mostly below RM800k/unit from Sunsuria City. FY20 sales hinges on projects at Sunsuria City, namely Monet Residences (GDV: RM994m), and Forum II (GDV: RM893m) at Setia Alam while other projects include Tangerine (GDV: RM242m) and Giverny Walk (GDV: RM67m). We believe the group could aggressively land bank going forward due to its light balance sheet.

Maintain FY20E NP of 133m and introduce FY21E NP of RM140m based on FY20-21 sales targets of RM0.40b each. Unbilled sales of RM323m provide under one-year earnings visibility.

Maintain MARKET PERFORM with a lower Target Price of RM0.585 (from RM0.760) post switching to a P/BV valuation method (from RNAV) as a more conservative approach to gauge trough valuations of property stocks amid the prevailing market down-cycle. Our TP is based on P/BV of 0.55x (@ -1.5SD of its 3-year historical band) on an adjusted BV/share of RM1.05 (after imputing a 40% discount to its latest available inventory level of completed properties). We are comfortable with our MARKET PERFORM call as we have priced in most foreseeable risks for now and given that earnings have met expectations in recent quarters as well as bouncing back from a low after the adoption of MFRS 15* and MFRS 123 which inflated financing cost in FY19. Our TP is conservative as it implies a 75% discount to our FD SoP RNAV of RM2.34.

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

Source: Kenanga Research - 28 Nov 2019