FY21 CNP of RM162m came above our expectation on stronger JV contributions from a revaluation gain in Battersea, but below consensus likely due to their overly optimistic margin assumptions. A 0.65 sen dividend declared is above estimate. Meanwhile, FY21A sales of RM4.26b are well within our RM4.3b target. For FY22E, we are targeting RM3.3b worth of sales (management targets: RM4b) backed by RM4b launches. Keep UP with an unchanged TP of RM1.19 (0.4x PBV).

Above expectations. 4QFY21 CNP of RM123m lifted FY21 CNP to RM162m – above our estimate at 124% but below consensus’ at 80%. The outperformance against our target stemmed from stronger-than expected JV profit of RM23.7m (mainly from Battersea) in this quarter arising from a revaluation gain (unknown quantum as management did not disclose it). Meanwhile, we believe earnings missed consensus due to their overly optimistic margins assumptions. Meanwhile, a 0.65 sen dividend declared came as a positive surprise as we did not anticipate any dividend for the year.

4QFY21 sales of RM0.88b led FY21 sales to RM4.26b (backed by RM2.0b launches) – above management’s RM3.8b target (112%) but well within our RM4.3b target (which we had revised upwards last quarter). Unbilled sales of RM10.2b provide two years’ coverage.

Highlights. QoQ, 4QFY21 CNP of RM123m surged back into the black from a CNL of RM76m registered last quarter mainly because of: (i) higher revenue (+74%) in the absence of lockdown as experienced in 3QFY21, and (ii) 3QFY21 incurred the semi-annual RCPS dividend distribution* of RM66m. YoY, FY21 CNP of RM162m leapt 337% from a low base as FY21’s Covid-19 lockdowns were not as strict as FY20.

*RCPS distribution occur every 1Q and 3Q.

For FY22E, we target RM3.3b of sales (-19% YoY) while management targets RM4b on the back of RM4b launches. Our lower sales target depicts the challenging prospect for the sector in the near to medium term given the absence of HOC incentives and the anticipation of a rate hike this year.

Despite the outperformance registered in 4QFY21, we keep FY22E earnings estimate of RM509m as the outperformance mainly comes from the revaluation gain in Battersea which is non-recurring. The bumper earnings expectation showcased in FY22E is premised on: (i) two Melbourne projects (Uno and Sapphire) which recognise earnings upon completion, and (ii) completion of RM236m land sale at Johor Bahru (to Scientx). Meanwhile, we introduce FY23E earnings of RM323m.

Keep Underperform with an unchanged Target Price of RM1.19 based on an unchanged FY22E PBV of 0.40x (-1.5SD). Being one of the largest developers in the country, we view SPSETIA as a proxy for the sector’s outlook which appears challenging plagued by affordability, oversupply and policy issues.

Risks to our call include: (i) higher-than-expected property sales, (ii) margin fluctuations, (iii) changes in real estate policies and lending environment, (iv) cash-calls, and (v) timing of overseas/local billings

Source: Kenanga Research - 1 Mar 2022