• Maintain NEUTRAL, MYR0.52 TP, 0% upside but with 4% FY20 (Sep) yield. Fiamma is expected to announce its FY19 results on 26 Nov. We are not expecting many surprises from its trading & services segment, which benefits from its mostly mass market-focused product lines. Meanwhile, its property unit should record sales growth (albeit insignificant) – which limits our sentiment on the stock.

• Trading & services to still significantly underpin earnings. For FY19, we expect its trading & services segment to book a steady performance, although the segmental margin should normalise YoY, as it partly benefited from the tax holiday in 2018. As this segment is focused on the mass market, it should continue to anchor earnings – since consumers are generally budget-conscious during times of soft economic growth.

• Property: additional units to be sold. We expect its property unit to record additional sales from completed projects – so its full-year numbers should be in the black. What is more important are the take-up rates for Vida Heights (in Johor Bahru, GDV: MYR120m), which was completed in Aug 2017, and the ongoing East Parc (in Bandar Menjalara, GDV: MYR320m) which is 80%-completed. Both projects’ soft take-up rates have capped our sentiment on the stock. As the domestic property market remains challenging, more conservative and measured new launches are preferred. As such, Fiamma is more likely to launch select small-scale property projects while waiting for a better time to develop its land plots along Jalan Yap Kwan Seng and Jalan Sungai Besi.

• We make no change to our estimates. This is as its property project take up rates and sales of completed units would remain the key catalysts that could impact our earnings forecasts.

• 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 - 25 Nov 2019