1QFY20 CNP of RM19.6m came in below our (3%) and consensus (5%) on a weak top-line and associate as well as JCE losses. 1QFY20 sales of 245m were also below at 14%. We trim earnings for FY20-21E by 37-29% to RM410-497m on lower property sales targets and recognitions from slower work progress. Maintain OUTPERFORM and TP of RM0.88 based on -1.5SD of 0.64x to its adjusted BV/share of RM1.38.

Below expectations. 1QFY20 CNP of RM19.6m came in below our and consensus expectations at 3% and 5%, respectively. The reason for the deviation was due to weaker-than-expected top-line that came in at 15% of our estimate, and associate and JCE losses of RM11.3m. 1QFY20 sales of RM345m also came in below at 13.8% of our FY20E sales target of RM2.5b. Sales were mainly driven by Kota Elmina, City of Elmina and Bandar Bukit Raja townships. No dividends, as expected.

Results’ highlights. YoY, topline was down by 17% on lower recognitions from the property segment mainly on weak performance at its Negeri Sembilan and Johor and integrated townships. All in, CNP declined by 93% on; (i) associate and JCE losses of RM11.3m (vs. RM3.5m profit) from lower contribution from PJ Midtown and higher share of losses from Battersea, (ii) other operating expenses of RM5.4m loss (vs. RM204m gain in 1Q19 driven by the sale of Darby Park), and (iii) a high effective tax rate of 81% (vs. 9% in 1Q19). QoQ, top-line was down by 46% due to stronger recognitions in 4Q19 which cascaded straight to bottom-line which declined by 85% due to similar reasons mentioned above.

Outlook. We lower FY20-21E sales target to RM1.7-2.1b (from RM2.5b each) as the Covid-19 pandemic may impact buyer sentiment going forward. Upcoming launches include mostly of landed residential projects in townships. The Group has secured total bookings of c.RM900m thus far which is primed to be converted to sales. Unbilled sales of RM1.5b provide c.1-year visibility.

We lower FY20-21E CNP by 37-29% to RM410-497m as we opt to be more conservative expecting lower sales on weaker buyer sentiment and the signing pace of SPAs, while future construction progress may see delays going forward as a result of Covid-19. We also expect weaker contribution from the leisure segment as events and functions have declined following the Covid-19 pandemic outbreak. FY20-21E dividend of 1.8-2.2 sen imply yield of 2.7-3.2%.

Maintain OUTPERFORM and TP of RM0.88. We maintain our conservative adjusted P/BV valuation method to ascertain the trough valuations of property stocks amid the prevailing market down-cycle. Our TP remains unchanged despite lowering our P/BV multiple SD to -1.5SD of its 3-year historical band at 0.64x (from -1SD of 0.63x post updating our bands), and on an adjusted BV/share of RM1.38 (from RM1.40) after imputing a 40% discount to its latest available inventory level of completed properties. We believe SIMEPROP remains an OP as we have priced in most negatives to our earnings and valuations given its oversold position (-25% YTD, trading at a 52% discount to BVPS), while coming quarters should see better earnings as work progress is resuming gradually post MCO and on expectations of lumpy land sale gains ahead. We continue to like SIMEPROP for its healthy balance sheet and low gearing levels of 0.25x which bode well during times of uncertainty, and its active inventory clearing efforts to RM6.5b (from RM6.6b in 1Q19).

Source: Kenanga Research - 22 May 2020