1HFY21 came in below our expectation and consensus, making up 44%/37% of full year estimates. Positive is that while both Retail Business and Property Management top-lines receded, margins improved on account of better product mix and contained operating costs. 3QFY21 remains challenging, but we see improvements beyond that premised on normalization of business activities with lockdowns easing further as the national vaccination program reaches the final stage by Oct. We raise FY22 EPS by 12% and TP to RM1.80, pegged to a higher FY22E PER of 25x. Upgrade to OUTPERFORM.

Below. 1HFY21 earnings of RM33m came in below our expectation, accounting for 44%/37% of our/consensus full-year estimates. No dividend declared as dividends are only declared in the final quarter.

YoY, given the on-going pandemic and travel restrictions, top-line fell 12% to RM1.9b as both Retail and Property Management fell 12% to RM1.6bn and RM276m, respectively. The Retail Business saw lower demand on account of: (i) lower demand seen in the Chinese New Year festivities, and (ii) 57 days of closure as non-essential services compared to 46 days in the corresponding period last year. The closure of malls pursuant to HIDE and closure of non-essential departments saw the decline in Property Management’s top-line. Despite the weak top-line, better product mix as well as offering products that are relevant to the situation at hand saw overall GP margin improving by 3ppt to 20%. Retailing Business saw better EBIT margin at 4% (from 1%) while Property Management saw stabilization at 36%. PBT surged 167% to RM70m with margin improvement by 3ppt to 4%. These improvements saw earnings rebounding to RM33m.

QoQ, top-line fell 14% to RM874m dragged by the Retailing segment (-17%) to RM733m. Property Management saw a 5% uptick to RM141m due to variable rent payments via sales commission to retain existing tenants and recruit new ones which saw its EBIT margin jumping 11ppt to 41% while Retailing saw a 4ppt slash to 2%. Overall, Group EBIT margin was stable at 7%. Higher ETR (61%) saw net earnings falling 50% to RM11m.

No change in our view of gradual normalization ahead. Given the on- going ramp-up in vaccination, we maintain our view of gradual normalization of retail footfall ahead. Earnings likely to be sustained given the successful product mix and variable rent payments.

Post results, we revised our FY21E/FY22E earnings marginally downwards/upwards by -7%/+12% to RM70m/Rm103m. The prolonged restriction in Phase 1 states should see weaker performance for FY21 but gradual normalization of social and economic activities ahead and better gross margins justify our revised earnings for FY22.

Call revised upwards. Our TP is raised to RM1.80 (from RM1.20) pegged to its 5-year mean, at FY22E PER of 24.8x. We feel this is justified given the expected normalization in social and economic activities ahead. We resist from giving it a premium given its high net debt (RM527m) and tax rate putting a dampener on its dividend payout vs. its peers.

Risks to our call include: (i) lower-than-expected sales, and (ii) higher-than-expected operating expenses, iii) new variants of the pandemic.

Source: Kenanga Research - 30 Aug 2021