Results Review

• Excluding forex gains amounting to RM8.7mn, the 9M16 core profit of RM14.0mn came in within expectation, accounted for 32.5% of our full-year estimates. We expect a strong 4Q16 as the group will recognise a guaranteed profit of USD5mn end-2016 for its earlier investment in Vietnam plant.

• YoY, 9M16 core profit plunged 68.7% as revenue dropped 8.0% to RM521.1mn. The drop in profit was due mainly to higher production and operating costs, arising from increased natural gas price and high spare parts costs due to weakening of Ringgit, as well as clearance of slow-moving inventories at a discounted price, and lower economies of scale given the drop in sales.

• QoQ, the revenue declined by 10.9% to RM165.6mn. However, the core profit improved by 6.0% to RM4.4mn as operation in Vietnam turned around from loss-making to record marginal profit before tax.

• An interim dividend of 5sen/share was declared, maintaining the same quantum last year.

• The group recorded lowest quarterly revenue in the past 3 years, dragged by the declined sales in Malaysia, in line with the softening of local property market.

Impact

• Earnings forecasts for FY16/FY17/FY18 were adjusted by +1.0%/- 10.9%/-11.7% as we perform house-keeping to our earnings model, and after lowering the sales forecasts to reflect the challenging property market condition in Malaysia.

Outlook

• We are positive on its operation in Vietnam, supported by upbeat sentiment in Vietnam’s property market.

• However, the operating environment in the local market which we estimate contributing about 70% of the group’s total revenue, is expected the be tough. This is in view of declining property transactions. The 25,901 units of property transacted in 4 major states in Malaysia (Kuala Lumpur, Selangor, Penang and Johor) in 3Q16 was the lowest since 3Q07.

Valuation

• Subsequent to the earnings adjustments, we cut the target price from RM2.32 to RM2.07, based on unchanged 10xCY17 EPS. Downgrade the stock from HOLD to SELL as we think the current share price has reflected its value.

Source: TA Research - 25 Nov 2016