1HFY20 CNL of RM8.7m is deemed within our estimate as we anticipate weaker quarters ahead due to lower sales, and impact from the Covid-19 pandemic. No dividend was declared as expected. We are ceasing active coverage with our previous FY20E and FY21E CNLs at RM24.6m and RM19.4 respectively. The stock is now a NOT RATED with our last TP of RM0.520.

Deemed within expectation. 1HFY20 CNL of RM8.7m is deemed within our estimate as we expect weaker quarters ahead in view of lower property sales, and impact from the Covid-19 pandemic could further drag the company. No dividend declared, as expected.

Results’ highlight. YoY, 1HFY20 registered lower losses of RM8.7m compared to RM9.9m in 1HFY19, largely due to lower selling and distribution costs in line with lower property sales activity and lower administrative expenses (-51%) due to the implementation of MCO. QoQ, 2QFY20 recorded lower CNL of RM1.7m compared to RM7.0m in the preceding quarter mainly due to the same reason mentioned.

Outlook. Moving forward, we believe MAGNA’s focus will continue to be on clearing existing inventory in its Boulevard Business Park, Jalan Kuching, and Desa Mentari projects. Apart from these, management is also seeking to sell off non-strategic land in order to reduce its gearing level.

Cease coverage. Due to a lack of investors’ interests and the reshuffling of our research resources, we are ceasing active coverage for now. Should its outlook improve, we may seek to resume coverage in the future. Our previous 2020E and 2021E CNLs are RM24.6m and RM19.4m, respectively. The stock is now Not Rated (from UNDERPERFORM), with our last TP of RM0.520 implying FY21 PBV of 0.4x.

Risks to our call include: higher-than-expected margins/property sales, lower-than-expected administrative costs, changes in real estate policies, and changes in lending environment.

Source: Kenanga Research - 14 Aug 2020