9MFY20 CNL of RM92.7m came in weaker than expected due to slow progress billings with top-line only making up 35% of our estimate. Sales registered broadly within at 37% on expectation of a stronger 4Q20. We trim FY20-21E earnings by 49-21% and downgrade call to MARKET PERFORM (from OP) on a lower TP of RM0.430 (from RM0.555) on lower valuation of 0.30x PBV (-2SD) given the challenging property market outlook.

9MFY20 below expectations with a core net loss (CNL) of RM92.7m vs. our FY20E CNP of RM60m and consensus of RM51m. This is its third loss-making quarter in a row due to a weaker-than-expected topline which only made up 35% of our estimate due to weak recognitions, as we had initially expected sales recognitions to pick up by 3QFY20 post the various MCOs. 9MFY20 sales of RM373.9m made up 37% of our RM1b sales target which we deem as broadly within for now as we expect a stronger 4QFY20 on expected lumpy en-bloc sales, higher sales given that most FY20 new product launches were in 2H 2020 (June, July and Oct), and conversion of RM321m worth of bookings from HOC. No dividends as expected.

Results’ highlights. YoY-Ytd, top-line was down by 70% due to slower progress completion during the MCO and CMCO periods and lower contribution from international projects. This coupled with persistent high expenses and finance cost (+3%) resulted in a CNL of RM92.7m.

QoQ, bottom-line recovered to a CNL of RM31.8m (from CNL of RM57.4m) despite higher revenue (+94%) due to: (i) higher expenses (+10%), (ii) finance cost (+12%) on increased borrowings, and (iii) a higher effective tax rate of RM7.2m (vs. tax income of RM6.1m).

Outlook. We maintain our RM1b sales target. 4QFY20 will see RM695m new launches (vs. RM250m launched GDV to date), mostly from Allevia, Mont’ Kiara (GDV: RM545m) which is targeted to be launched by Nov/Dec 2020. The Group has been successfully paring down inventories (-9% YTD) to RM498m. Management is targeting to reduce its Johor lands exposure and increase land banks in the Klang Valley and Australia. Unbilled sales of RM1.7b would provide visibility for the next two years.

Reduce FY20-21E earnings by 49-21% upon lowering revenue recognitions due to slower-than-expected work progress given the various MCO phases in FY20, while we expect the recent surge in Covid-19 cases to further hamper 4QFY20 progress billings. FY20/21 property sales target of RM1.0b/RM1.8b is maintained.

Downgrade to MARKET PERFROM (from OP) with a lower TP of RM0.430 (from RM0.555) on a lower 0.30x FY21E PBV (-2SD) from 0.37x FY21E PBV (-1.5SD). Our call is premised on a challenging sector outlook given the slow-down in progress billings which would hamper earnings in the near term but we may look to up earnings estimates once the situation recovers.

Source: Kenanga Research - 25 Nov 2020