INVESTMENT HIGHLIGHTS

• 9MFY18 earnings below expectation

• Weaker contribution from on-going projects

• Earnings estimates revised downwards

• Downgrade to Sell with a revised TP of RM0.81

9MFY18 earnings below expectation. Magna Prima 9MFY18 core net income of RM2.7m came in below expectation, making up 45% of our full year estimates. The negative deviation could be attributed to the slower-than-expected progress billing of its projects in Klang Valley. Comparison to consensus estimates is not available due to limited research coverage.

Weaker contribution from on-going projects. Magna Prima recorded core net income of RM0.5m in 3QFY18, declined by 66%qoq from core net income of RM1.5m in 2QFY18. That brought cumulative core net income to RM2.7m in 9MFY18, declining by 78%yoy. Note that we have excluded forex gain of RM9.5m in our core net income calculation. Core net income was weaker in 9MFY18 due to lower contribution of its on-going projects in Klang Valley and lack of new launches in FY18. Earnings of Magna Prima were mainly contributed by sales of remaining completed units of residential project in Jalan Kuching and Desa Mentari commercial project.

Earnings estimates revised downwards. We cut our FY18/FY19 earnings forecast by 36%/57% as we assume lower progress billing from its projects in Klang Valley. We expect earnings outlook for Magna Prima to be lacklustre due to lack of new launches and weak sales momentum from The View Residences in Shah Alam.

Downgrade to Sell with a revised TP of RM0.81. We revise our TP for Magna Prima to RM0.81 from RM1.07 as we widen RNAV discount to 55% from 40%. We downgrade Magna Prima to Sell from Neutral due to the disappointing earnings in FY18. The weak new sales outlook is also expected to drag its earnings in the near-term.

Source: MIDF Research - 23 Nov 2018