1QFY20 CNP of RM7.2m came in broadly within our expectation at 5.4% while sales came in slightly below at 9.2%. Maintain FY20-21E CNP of RM133-140m driven by property sales of RM0.40b in FY20-21. As we are ceasing coverage, the stock is now a NOT RATED with our last TP of RM0.575 on adjusted PBV valuations.

1QFY20 CNP of RM7.2m is deemed broadly within our expectation at 5.4% of FY20 estimates. We deem this as broadly within due to SUNSURIA’s lumpy revenue recognition profile which will only pick up in the 2HFY. No consensus is available. 1QFY20 sales of RM88m are within our expectation at 22% of our estimate of RM400m with key sales drivers being Forum II and Monet Residences. No dividends were proposed, as expected.

Results’ highlights. YoY, top-line was down by 43% due to timing of recognitions as FY19 saw lumpier recognitions from The Olive and Money Lily projects. All in, CNP was up by 38% to RM7.2m on a lower effective tax rate of 30% (vs. 54%) and after accounting for one-off items. QoQ, top-line was down by 55% due to similar reasons mentioned above. This trickled to bottom-line which was down by 35% despite the lower effective tax rate.

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 FY20-21E CNP of RM133-140m based on FY20-21 sales targets of RM0.40b each. Unbilled sales of RM349m provide under one year earnings’ visibility.

Cease coverage. We make no changes to earnings estimates. Due to lack of interest and reconfiguration of our internal research resources, we are ceasing active coverage on SUNSURIA for now. Should the outlook improve, we may look to resume coverage in the future. The stock is Not Rated (from MARKET PERFORM), with our last TP of RM0.575 (from RM0.585) based on P/BV of 0.52x (from 0.55x) @ - 1.5SD of its 3-year historical band, on an adjusted BV/share of RM1.10 (from RM1.05) which is adjusted after imputing a 40% discount to its latest available inventory level of completed properties.

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 - 26 Feb 2020