1HFY20 CNP of RM54.9m came in below our (28%) and consensus (30%) expectations on weaker than expected JV contributions. YTD, ECOWLD sales of RM975m for 8-month period is broadly within (49% of FY20 estimate), while EWINT (27%-owned associate) sales of RM808m* are also deemed broadly within forecast with sales expected to pick up in the 2H after the lull due to Covid-19. No dividends, as expected. All in, we lower FY20E CNP by 21% on lower JV contributions while FY21E remains unchanged. Downgrade to MP (from OP) following the share price recovery (+5.1% from our last update), on a lower TP of RM0.395 (based on PBV of 0.27x) from RM0.410.

1HFY20 CNP of RM54.9m came in below our (28%) and consensus (30%) expectations. Top-line came in at 49%, but the deviation from our estimate was due to weaker-than-expected associate and JV contributions locally and also from EWINT. The Group achieved sales of RM975m as at mid-June 2020 (eight and a half-month period) making up 49% for FY20 target of RM2.0b, which is broadly in line as we expect strong sales momentum in 2HFY20 given the lull in 2QFY20 due to Covid- 19. Meanwhile, EWINT (27% associate) recorded RM808m* sales (37% of FY20E sales target for RM2.2b) and is also deemed within expectations given stronger momentum in the coming months with a potential BtR sale to be concluded by year end. No dividends, as expected.

Results’ highlights. YoY-Ytd, top-line was down by 15% on lower recognitions due to the MCO, which delayed construction progress in 2QFY20. As a result, CNP declined by 23% despite lower operating cost (-12%) and slight improvement in associate JV contributions (+10%).

QoQ, top-line declined by 36% due to similar reasons mentioned above. Operating cost also declined in tandem, by 37% due to lesser operations, administration and selling activities during the MCO period. However, weaker contributions from JV and associates (-37%) and higher effective tax rate, resulted in CNP declining by 36%. Meanwhile, net gearing stood at 0.68x as of end-Apr 2020.

Outlook. We maintain FY20 sales target of RM4.2b in line with management’s target, and FY21 sales at RM6.0b. Details of maiden dividends in FY20 will likely gain more clarity in 2HFY20 when there is a clearer picture on the Covid-19 situation. There were delays for resumption of physical work and construction in local sites, which only fully resumed in mid-June 2020. We have accounted for this in our estimates previously as we expected slow resumption of work progress for up to 3 months.

Lower FY20E CNP on weaker-than-expected JV contributions. All in, we lower FY20 earnings by 21% to RM157m and leave FY21E unchanged, as we tone down our contributions from local JVs, as well as from EWINT due to lower estimated contribution from BtR sales in FY20 as we opt to be conservative given the challenging market. Unbilled sales of RM4.6b provide over two years’ visibility.

Downgrade to MARKET PERFORM (from OUTPERFORM) following the share price recovery of 5.1% since our last upgrade in March 2020. Our TP is lowered to RM0.395 (from RM0.410) to a lower P/BV of 0.27x (- 2.0SD) from 0.28x (-2.0 SD) on an adjusted BV/share of RM1.47 (from RM1.48) after imputing a 40% discount to its latest available inventory level of completed properties, in view of the prevailing market down cycle and the pre-existing challenging property climate. We expect 3QFY20 to remain challenging albeit some improvements QoQ, while 4QFY20 should normalise if there are no further hiccups in work progress and the economy in coming months.

Risks to our call include: (i) stronger/weaker-than-expected property sales, and (ii) higher/lower-than-expected overheads/finance.

Source: Kenanga Research - 26 Jun 2020