• Maintain NEUTRAL and MYR0.52 TP, 6% expected total return plus c.4% FY20 (Sep) yield. 1Q20 results are scheduled for release on 26 Feb. We are expecting YoY bottomline performance to be softer, as trading & services’ PBT margins are expected to normalise. At this juncture, the COVID-19 outbreak in China has yet to have material impact on Fiamma, as it has stocked up inventory prior to the Lunar New Year holidays in the East Asian state. It also typically maintains 2-3 months of inventory.

• Trading & services likely to be softer YoY. We are expecting the company to report a slightly softer YoY bottomline, as PBT margins are expected to normalise from 14.9% in 1Q19 vs our FY20 full-year assumption of 13.2%. While we note that the COVID-19 outbreak situation and its impact on global supply chains are evolving, we understand that – at this juncture – Fiamma is not experiencing material impact on its operations. This is because it normally maintains 2-3 months of inventory – more so as it has stocked up such inventory prior to the Lunar New Year holiday break in China.

• Property: Low take-up rates still despite additional units sold. We expect the property segment to record additional new sales. However, this is unlikely to significantly improve the overall portfolio’s take-up rates. Specifically, moving into 1H20, East Parc in Bandar Menjalara (GDV: MYR320m), is targeted for completion by 1H20. While the project is expected to sell additional units during 1Q20, the take-up rate should be keenly monitored. We are also not expecting Fiamma to launch large-scale projects, going forward.

• Keeping forecasts. While 1Q20 is expected to be weaker on a YoY basis, we are keeping our FY20 full-year forecasts, as we are expecting the subsequent quarters to make up the gap in 1Q.

• Risks to our call. Upside risks are better-than-expected margins for the trading & services unit, as well as faster-than-expected sales of completed and ongoing property projects. The downside risks: An extended softness in economic growth, which may negatively impact consumer spending, as well as supply chain risks due to the COVID-19 outbreak.

Source: RHB Securities Research - 24 Feb 2020