1HFY21 CNP of RM82.4m came below both our and consensus expectations. We had been overly optimistic on Battersea’s contributions while consensus might have underestimated the FMCO impact. Meanwhile, 1HFY21 sales of RM1.3b is tracking above our conservative RM2.1b FY target (at 63%) as 2HFY21 sales should come in strong given healthy pipeline of launches worth RM2.1b which is 36% higher than 1HFY21’s launch of RM1.5b. Reduce earnings by 21%/11% and maintain MP on unchanged TP of RM0.605 pegged to FY22E PBV of 0.44x.

Below expectations. 2QFY21 CNP RM20.2m led 1HFY21 CNP to RM82.4m, below our/consensus expectations at 41%/30% of estimates respectively. The negative deviation against our estimate is due to our overly optimistic projections for Battersea while consensus might have underestimated the impact of the FMCO to its operations. Meanwhile, 1.0 sen dividend declared is inline.

Sales above target. 2QFY21 sales of RM0.68m brought 1HFY21 sales to RM1.32b – above our conservative target of RM2.1b (at 63%). We believe 2HFY21 sales would bring full-year sales to meet management’s target of RM2.4b given the strong pipeline of launches worth RM2.1b planned for the remainder of the year. Note that 1HFY21 sales were backed by RM1.54b worth of launches. Consequently, we raise our FY21 sales target to RM2.4b in line with management.

Results’ highlights. YoY, 1HFY21 CNP of RM82.4m improved 4.68x mainly because of the higher revenue recognized (+43%) stemming from shorter and easier lockdown measures. QoQ, 2QFY21 CNP of RM20.2m came off 68% mainly from reduced revenue (-15%) caused by the FMCO lockdown in the month of June 2021.

Outlook. The group’s upcoming RM2.1b worth of launches consist mostly residential projects (landed residential: 41% and high rise residential: 34%) located in prime Klang Valley areas, 14% of commercial and 11% of industrial products. Unbilled sales of RM1.8b provide <1-year visibility.

Vaccination update. Management is targeting for all of their construction workers to be fully vaccinated by mid-September – allowing them to operate at full capacity by 4QFY21.

Post results, we lower FY21E/FY22E CNP of by 21%/11% after reducing contribution of Battersea to JVA by lowering margin assumptions for both years and (ii) increase FY21E sales assumption to RM2.4b (from RM2.1b).

Maintain MARKET PERFORM and unchanged TP of RM0.605 based on 0.44x (-1.5SD from mean). We believe the stock alongside most property peers warrants conservative valuations given the outlook which is still plagued by affordability, policy and oversupply issues which impedes earnings visibility.

Risks include: (i) weaker/stronger-than-expected property sales, (ii) weaker margins, (iii) changes in real estate policies, and (iv) changes in lending environment.

Source: Kenanga Research - 27 Aug 2021