• Stay NEUTRAL, new MYR0.52 TP from MYR0.49, 10% total return as we roll forward our valuation to FY20 (Sep). Post results, we trim Fiamma’s FY19F-21F earnings largely to reflect a less aggressive assumption for its property take-up rate. While its trading segment remains resilient – as consumers switch to affordable home appliances amidst an environment of tepid spending on household goods – the property unit’s soft performance will continue to drag on investor sentiment.

• 4QFY19 could be softer for the trading segment. Fiamma’s 9MFY19 PATAMI of MYR21.8m comprised 70% of our full-year forecast – below expectations. 4QFY19 is expected to bring slightly soft numbers for its trading arm on a YoY basis, as it benefitted from the one-off tax holiday in 4Q18. Overall topline grew by almost 10% to MYR255m, as the trading and property segments registered growth of 4% (MYR211.5m) and 57% (MYR39m). The property business was driven by higher progress billings for the East Parc project and an increase in inventory sales. PBT improved 11% YoY to MYR32.2m, due to revenue growth, a 20bps YoY margin improvement from its trading segment to 13.8%, and the turnaround of its property segment, which booked PBT of MYR1.8m from LBT of MYR0.1m in 9MFY18.

• Updates on property projects. Overall, the take-up rates for its key projects are soft, due to the still-lacklustre domestic property market conditions. For its specific sizeable projects as of end-3QFY19, East Parc (in Bandar Menjalara, GDV: MYR320m) was 69%-completed, with a take up rate of 42%, after another four units were sold in 3QFY19. On Vida Heights (in Johor Bahru, GDV: MYR120m), which was completed in Aug 2017, the take-up rate was 24%, with five units sold in 3QFY19. Additionally, 61 units of Vida Heights have been leased out. On Menara Centara, 91% of the 152 owned units are leased out. We are not expecting the company to launch meaningful projects in the near term.

• We cut FY19-21 earnings forecasts by 9-14%, largely to reflect a less aggressive take-up rate assumption for East Parc.

• Risks to our call. Upside risks are better-than-expected margins for the trading & services unit, and faster-than-expected sales of completed and ongoing property projects. The downside risk is an extended softness in economic growth, which may negatively impact consumer spending.

Source: RHB Securities Research - 22 Aug 2019