Review

• Sentoria reported 1QFY17 net profit of RM8.5mn. Results were below expectations at 19% of our full-year earnings forecast. We attribute the earnings miss to timing of recognition of property development profits.

• Despite recording a strong 28% YoY growth in revenue, 1QFY17 net profit was flat at RM8.5mn. Property development margin contracted 7.7ppt YoY, due to higher contribution from affordable homes projects which have lower margin.

• Sequentially, the group’s 1QFY17 net profit fell 27% QoQ. This was attributed to lower revenue from property development division as newly launched projects have yet to reach significant billing stage.

Impact

• Our FY17-19 earnings are revised lower by 28-34% after factoring in the following:- 1. Lower FY17-19 new sales assumptions to RM280-470mn from RM300- 520mn previously. 2. Adjust our progress billing assumptions to reflect the timing of new launches. 3. Reduce EBIT margin assumptions by 2ppt to account for the change in product mix.

Outlook

• There were no sizable new launches rolled out during the quarter under review. As such, the group only recorded RM31mn sales in 1QFY17 (compared to RM9.1mn recorded in 1QFY16). Kuantan and Kuching contributed 42% and 58% of 1QFY17 sales respectively.

• Management maintains its FY17 sales target of RM350mn, driven by RM420mn worth of launches and on-going phases worth >RM100mn. The group’s future earnings will be anchored by unrecognized revenue of RM267mn, comprising unbilled property sales of RM152mn and outstanding orderbook from design and build contract worth RM115mn. This represents 1.1x of the group’s FY16 revenue.

Valuation

• As the earnings from Kuching and Morib in the past years should kick in significantly in FY18-19, we prefer to value Sentoria based on its CY18 earnings. Pegging a target P/E of 8x to its CY18 EPS of 10.0sen , we arrive at a new target price of RM0.80 for Sentoria. Nevertheless, our Hold call is maintained, given the potential total return of 10.1%.

Source: TA Research - 23 Feb 2017