1QFY20 CNP of RM126.8m is broadly within our (38%) and consensus (37%) expectations on strong 1Q recognitions and as we expect a weaker 2Q. 1QFY20 sales of RM114.8m came in below at 12%. The Group is focussing on increasing take-up rates and continuing its inventory clearing efforts. Maintain FY20E CNP but lower FY21E CNP by 7% on lower FY20 sales target of RM814m (from RM963m). Downgrade to MARKET PERFORM (from OP) on an unchanged TP of RM1.79 (based on -1.5SD PBV of 0.78x) given share price run-up since our 2QCY20 strategy report (+16%).

1QFY20 broadly within expectations. 1QFY20 CNP of RM126.8m (38% of our FY20E CNP) is deemed broadly within our and consensus estimates (37%) as the strong 1Q was due to strong recognitions from the completion of United Point Residence allowing top-line to come in at 32% of our estimate on higher margins. However, we deem this as broadly within expectations as we expect a weaker 2Q from halted work progress due to the MCO and margins to ease closer to our expectation of 28% (vs. 34% currently) given challenges due to Covid-19. 1QFY20 sales of RM114.8m came in below our expectation of RM963m (12%), driven by sales at United Point Residence and The Goodwood Residence. No dividends, as expected.

Results’ highlights. YoY, top-line was up by 53% on strong recognitions from United Point Residence which was completed in 1QFY20 and South Link Lifestyle Apartments while operating cost only increased by 17%. All in, CNP was up by 112% to RM126.8m despite the higher effective tax rate of 30% (vs. 25% in 1QFY19). QoQ, top-line was up by 65% due to contributions from United Point Residence and Aster Green Residence. As a result, bottom-line was up by 63% despite the higher effective tax rate of 30% (vs. 15% in 4Q19). The group remained in a strong net cash position of RM737m (or 50 sen per share).

Outlook. The Group has RM4.4b worth of projects currently under development. The Group had launched Goodwood Residence@ Bangsar South (GDV RM600m) in Sept 2019 (end 3Q19) and Aster Green Residence @ Sri Petaling (GDV RM250m) in Nov 2019 which is expected to contribute positively to FY20 sales on top of on-going projects and inventory clearing efforts.

Maintain FY20E CNP of RM333m but lower FY21E by 7% to RM350m as we lower FY20 sales target to RM814m (from RM963m) and FY21 sales to RM900m. FY20-21 will be driven by recognitions from previous launches mostly Sentul Point, Goodwood Residence, South Link, and Aster Green Residence. Unbilled sales of RM640m provide <1-year visibility.

Downgrade to MARKET PERFROM (from OP) with an unchanged TP of RM1.79. Our TP remains unchanged despite an adjusted BV/share of RM2.45 (from RM2.36) and P/BV of 0.78x (from 0.76x) at 1.5SD below mean of its 3-year historical band given our concerns that property developers will find it challenging to clear their inventory of completed stocks and achieve forward sales targets given the Covid-19 impact. That said, we believe the group would be able to maintain dividend payment of 14.0 sen in FY20-21 in light of its strong cash position, implying 7.7% net yield which is a premium over sizeable MREITs with net yield of only 4.8%.

Source: Kenanga Research - 30 Jun 2020