4Q20 slip into red, revenue down 86.5%

Plenitude 4Q20 revenue dip to RM12.1m (yoy:-85.5%, qoq:-84.2%) and posted loss after tax (LAT) of RM3.5m (yoy:+RM18.1m, qoq:+RM3.4m). FY20 revenue and PAT account for 99.0% and 33.0% of our full year FY20F estimate respectively. Revenue in-line while PAT disappoint due to higher effective tax rate at 82.5% as certain expenses were disallowed as deductions for tax purposes and deferred tax assets not recognized.

Property Development division exacerbated by movement control

Property division posted only RM11.1m for 4Q20 (yoy:-85.3%, qoq:-82.9%) and operating profit dip to RM18.3m (yoy:-46.5%, qoq:-12.0%). The lower revenue was due to lower number of properties sold and lower contribution from ongoing development properties as construction activities were halted during MCO started from 18 Mar 20 and later extended with CMCO effective from 4 May 20. In view of weak sentiment in property market, management will continue to adopt a more cautious approach in new property launches and will continue intensify marketing and sales initiative to promote its existing inventories.

Hotel division 4Q20 operating loss widen as revenue down 92.8% due to travel restrictions

Hotel division posted RM1.0m in revenue (yoy:-92.8%, qoq:-91.1%) and operating loss of RM15.8m (yoy:-RM-5.4m, qoq:-RM4.5m). The significant drop in revenue was due to travel restrictions imposed by Government of Malaysia. In view of the challenging outlook, the Group closed three hotels (Mercure Penang, Gurney Resort Hotel & Residences and Travelodge Ipoh) and downsized operations in other hotels owned by the Group.

Prudent management and healthy balance sheet to weather storm, Maintain BUY with lower TP RM1.67

Covid-19 and the resultant economic slowdown has significant negative impact on Property and hospitality industry nonetheless we believe the group able to weather the pandemic slump given its prudent management, healthy balance sheet and good liquidity with gearing ratio at 0.2x and cash ratio at 1.5x. The group is trading at undemanding valuation, P/B of 0.22x in which we believe it has priced in the challenging business environment for the next 12 months. We expect the property and hospitality market to rebound along with Malaysia economy expected recovery in 2021 thus we maintained BUY recommendation with lower target price of RM1.39 from RM1.67 previously based on lower peers average P/B ratio of 0.34x of our estimate FY21F NTA.

Source: Mercury Research - 28 Oct 2020