• Maintain NEUTRAL and MYR0.52 TP, 1% expected total return. Fiamma presented a soft set of 1Q20 numbers, with PATAMI making up 20% of our full-year forecast. Post results, we tweaked our FY20-22 forecasts by -4%, -0.5%, and +3.5% as we are now expecting slightly lower take-up rates for its property projects and slower demand growth for its trading and services segment in FY20-FY21, in view of the challenging macro environment.
• Results below. As highlighted in our results preview note recently, FY20 started on a soft note with revenue coming in 6.4% lower YoY at MYR75m. The weak topline was contributed by the trading & services (-6.7% YoY to MYR62m) and property segments (-6.5% to MYR11m). Blended PBT margins were recorded at 11.8%, a decline from 13.9% recorded in 1Q19. Consequently, PATAMI fell 22% to MYR5.8m. Operating cashflow was still positive at MYR8.8m vs MYR11.2m recorded in 1Q19. As expected, no dividend was proposed.

• Updates on property projects. The property segment kicked off the financial year on a soft note, with nine additional units sold from both ongoing and completed projects. This was against 90 units sold in the entire FY19. Vida Heights (GDV: MYR120m, completed in Aug 2017) did not record any new sales in 1Q, with flat take-up rate (by units) at 24% – 189 units are still unsold, of which 54 units have been leased out. As for East Parc in Bandar Menjalara (GDV: MYR320m), which is 85% completed as of end-Dec 2019 and targeted for completion in 1H20, five units were sold – bringing the take-up rate to 44%. While the group is undertaking various small-sized projects which are at various stages of constructions in Johor, we are not expecting the company to launch any big size projects at this juncture.

• Land disposal deal update. On the disposal of 18 parcels of land in Johor for a total consideration of MYR39.2m, which based on the company’s estimate could see a one-off gain of MYR12m, the progress is according to schedule.

• Maintain NEUTRAL with unchanged TP of MYR0.52. Despite our negative earnings revision, TP is unchanged due to share buyback activity, while the impact on the RNAV from the earnings revision on property segment is minimal.

• 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 - 27 Feb 2020