9MFY20 net profit of RM14.3m (-76% YoY) missed both our/ consensus expectations at 23%, likely due to overly aggressive growth forecasts for both retailing and property management segments. Maintain OUTPERFORM with unchanged TP of RM1.00, as we continue to like the group for its undemanding 13.0x FY21E PER valuation, attractive dividend yield of c.5%, as well as anticipation of strong earnings rebound in FY21.

9MFY20 missed expectations. Despite the 4Q being a seasonally stronger quarter (taking up c.55% of full-year’s earnings), we deem 9MFY20 net profit of RM14.3m to be below expectations at only 23% each of our and consensus full-year estimates. We believe the negative deviation could be due to the overly aggressive recovery assumptions for both its retailing and property segments. No dividend was declared, as the group usually pays dividend in 4Q.

Results’ highlights. YoY, 9MFY20 revenue slipped 7% on the back of: (i) weaker revenue from retailing (-6%), no thanks to lower General Merchandise Sales as non-essential retail was not allowed to operate amid MCO (from mid-March to mid-May), as well as (ii) softer property management services (-11%) attributable to rental rebates given to the tenants and reduced sales commission from the lower occupancy rate during Covid-19. On top of the higher ETR of 77% from non-deductible expenses, net profit plunged by a greater quantum of 76%.

QoQ, the group recorded a 4% growth in top-line, which prompted it to swing back to a net profit of RM16.4m in 3QFY20 (versus 2QFY20 net loss of RM9.6m). We believe that the stronger set of results sequentially is largely attributable to the improvement in EBIT margin (+ 3.3ppt), which was aided by better profitability from both retailing and property management segments following the reopening of businesses post-lockdown, as well as tighter cost controls.

More to come. We believe the earnings recovery momentum observed in 3QFY20 would be able to persist moving forward, premised on the anticipated gradual normalisation in retail footfall for its retailing segment following the easing of movement restrictions, which is likely to be further boosted by the year-end festive promotions in 4Q. While we gathered that the mall occupancy rate remains lacklustre at c.80% (versus pre-pandemic of c.90%), the property management services segment should continue to be buoyed by gradual recovery in rental collections ahead, in our view, as businesses slowly recover post- lockdown.

Post-results, we cut our FY20E earnings downwards by 10% to account for more realistic recovery assumptions, and maintain our forecast for FY21E.

Maintain OUTPERFORM with unchanged TP of RM1.00 which is based on an unchanged FY21E 18x PER (near -1.0SD over its 5-year mean). We favour the group for: (i) its relatively undemanding valuations of 13x FY21E PER, which represents a near 50% discount from our consumer sector peers’ average of c.29x, (ii) decent dividend yield of c.5%, coupled with (iii) the anticipation for robust earnings recovery in FY21 banking on post-pandemic demand normalisation.

Risks to our call include: (i) lower-than-expected sales, and (ii) higher-than-expected operating expenses.

Source: Kenanga Research - 26 Nov 2020