9MFY20 CNP of RM134.1m came in above our (85%) and consensus (94%) expectations on stronger-than-expected margins. YTD, ECOWLD sales of RM1.58b for 10-month period is within (79% of FY20 estimate), while EWINT (27%-owned associate) sales of RM1.09b* is deemed broadly within forecast with sales expected to pick up in the 4Q. No dividends, as expected. All in, we increase FY20-21E CNP by 41-30% on better margins from cost control efforts and product mix. Upgrade to OP (from MP) on a higher TP of RM0.490 (based on PBV of 0.34x) from RM0.440.

9MFY20 CNP of RM134.1m came in above our and consensus expectations at 85% and 94%, respectively. Top-line came in within our expectation at 75%, but the earnings deviation from estimates were due to slightly higher-than-expected CNP margin of 9.9% (vs. our expectation of 8.7%) due to better-than-expected product mix and pricing power. For the year, the Group has achieved sales of RM1.58b as at Aug-2020 (10- month period) making up 79% of FY20 target of RM2.0b which is within expectation. EWINT (27% associate) recorded RM1.09b* sales (49% of FY20E sales target for RM2.2b) which is deemed broadly within expectation given expected 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 13% due to the multiple MCO phases that continued to impact the Group’s operations in 3QFY20. However, CNP was up by 10% post accounting for one-off writedown of inventories of RM65m. QoQ, top-line was up by 38% on increased work progress in 3QFY20 vs. 2QFY20 as the MCO began to ease. As a result, CNP was up by 270% on similar reasons mentioned above as well as increased associate and JV contributions. Meanwhile, net gearing stood at 0.64x as of end-July 2020.

Outlook. FY20 sales target of RM4.2b is maintained and is in line with management’s target, while FY21 sales target is RM6.0b. Details of maiden dividends for FY20 have yet to be decided pending more clarity 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, expecting a gradual resumption of work progress.

Increase FY20-21E CNP by 41-30% to RM221-240m. We increase CNP estimates post increasing FY20-21E CNP margins to 12.2-13.0% (from 8.7-10.0%) vs. current level of 9.9% on expectations of better product mix as well as cost control efforts going forward. Unbilled sales of RM4.4b provide over two years’ visibility.

Upgrade to OUTPERFORM (from MP) and increase TP to RM0.490 (from RM0.440) post increasing the PBV valuation to 0.34x (-1.5SD) from 0.29x (-2.0SD) on an adjusted BV/share of RM1.46 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 increase our valuations on expectations of better margins in coming quarters as the Group continues to focus on cost control efforts and assuming there are no further hiccups in work progress. We think an improving economy in the coming months should also be positive for sales momentum.

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

Source: Kenanga Research - 25 Sept 2020