FY19 CNP of RM256.4m is slightly above our (107%) but below consensus (81%) expectations on lower-than expected tax rate. FY19 property sales of RM4.56b were spot on our estimate as well as consensus’ while dividends were below (24% of our estimate) at 1.0 sen. We maintain FY20E CNP and introduce FY21E CNP of RM606m, but lower our dividend assumptions. Maintain OP on lower TP of RM1.45 (from RM1.80) post adjusting our P/BV valuation method.

FY19 CNP* of RM256.4m came in slightly above our expectation at 107% but below consensus’ at 81%. The deviation from our estimate was mainly from our higher expected tax rate assumptions of 32% than 29% that was realised, while the deviation from consensus was likely due to consensus not excluding i-RCPS interest costs, resulting in higher estimates. FY19A sales of RM4.56b was spot on our as well as management’s target of RM4.55b (100%) driven by sales from central (61%) and southern (16%) regions, while overseas sales made up 12%. Proposed dividend of 1.0 sen per share is below our expectation (24%) of our 4.2 sen target.

Results’ highlights. YoY, FY19 top-line was up by 9% on recognitions of locked-in property sales as well as the sale of British Embassy land in 2Q (for RM449.2m). As a result, CNP was up by 24% on lower minority interest and RCPS-i preferential dividends (-9%). QoQ, 4QFY19 top-line was down by 15% due to lower recognitions which cascaded to PBT (-35%). However, the absence of i-RCPS interest cost allowed CNP to jump by 106%. Positively, inventories of completed properties eased slightly YoY to RM1.44b (from RM1.46b).

Outlook. We maintain our FY20 sales target of RM4.55b, in-line with management’s target, coming mostly in the central region (64%) followed by the southern region (15%). Its upcoming launches in FY20 worth RM4.4b will be focused on landed residential properties (64%) followed by commercial (20%) in the central region, with the bulk priced between RM1-2m per unit (47% of planned launches) and 43% of planned launches priced between RM500k–RM1m.

Maintain FY20E CNP of RM379m and introduce FY21E CNP of RM606m. Its unbilled sales of RM10.67b provides >2 years of earnings visibility. However we lower our dividend payment slightly to 30% payout ratio (vs. 70% previously for FY20 closer to current levels of 16% of CNP). FY20-21E dividend yields are decent at 2.2-3.5%. FY20- 21E strong top-line and earnings are driven by strong recognitions from high FY18-19 sales of RM5.1-4.6b from local and overseas projects, and expectations of land sales of c.RM500m each, while FY21 will also see contributions from Battersea Phase 2 and 3A.

Maintain OUTPERFORM on lower Target Price of RM1.45 (from RM1.80). We maintain our conservative P/BV valuation method as a gauge to ascertain the trough valuations of property stocks amid the prevailing market down-cycle. Our TP is based on P/BV of 0.50x (from 0.63x) (@ -1.5SD of its 3-year historical band) on an adjusted BV/share of RM2.88 (from RM2.84) after imputing a 40% discount to its latest available inventory level of completed properties. This also takes into account the Group’s relatively high net gearing of 0.57x but we expect this to trend downward in the near future on strong earnings momentum especially in FY21 from Battersea as well as lower dividend payouts which should ease up cash-flows to pare down borrowings.

Risks include: (i) weaker-than-expected property sales, (ii) margin fluctuations, (iii) changes in real estate policies and lending environment, (iv) cash-calls, and (v) timing of overseas/local billings

Source: Kenanga Research - 27 Feb 2020