• Stay NEUTRAL, with a new MYR0.49 TP from MYR0.50, total return 3%. While 1HFY19 (Sep) PATAMI of MYR13.4m improved 11%, it was below our expectations, at 37% of our estimate. This was primarily due to Fiamma’s property wing’s lower-than-expected sales performance, which was partially offset by trading & services’ better margins. The group restated its previous financial performance on first-time adoption of the Malaysian Financial Reporting Standard. No interim dividend was declared.
• Property division improved YoY, but still below expectation. 1HFY19 revenue improved 7.6% to MYR160m, as both the trading & services and property development businesses saw improvements. The former upped organically 2% to MYR133m, while the latter improved to MYR23.6m (1HFY18: MYR14.6m). The much better performance by the property division was due to progress billings for ongoing projects and new sales from completed projects in Johor. Nevertheless, the performance still lagged our expectation due to lower-than-expected sales progress. At PBT level, trading & services saw a 6% improvement to MYR18.6m, in part due to a 58bps margin upgrade to 13.9%. The property wing reversed from a LBT of MYR1.1m to a PBT of MYR.6m. QoQ, revenue was near flat at MYR80m. However, PBT fell 19% to MYR9m on higher opex.
• Updates on property projects. Of Fiamma’s key two property projects, East Parc (Bandar Menjalara, GDV: MYR320m) is 63% completed while Vida Heights (GDV: MYR120m) was completed as at Aug 2017. While some additional units have been sold, the overall take-up rates for these projects are below our expectations: 42% (East Parc) and 23% (Vida Heights). Given the current soft property market and still low take-up rate for East Parc, we are not expecting the company to launch its Kuala Lumpur projects at Jalan Yap Kwan Seng and Jalan Sungai Besi yet.

• Reducing estimates and keeping our call. Post results, we cut our FY19F- 21F earnings 13-14%. This is primarily to reflect the still slow take-up rate for Fiamma’s property wing’s projects, which was partially offset by slightly higher margins for its trading & services division. Consequently, our TP is also reduced.

• Risks to our call: For the upside, this should be better-than-expected margins for the trading & services unit and faster-than-expected sales of completed and ongoing property projects. For the downside, an extended general softness in the economy could hurt consumer spending.

Source: RHB Securities Research - 15 May 2019