Review

• Excluding exceptional items amounting to a gain of RM35.6mn, Selangor Properties Bhd (SPB) reported FY17 normalised net profit of RM58.7mn. Exceptional items include the unrealised foreign exchange losses of RM17.7mn, fair value loss on financial assets of RM4.0mn, and fair value gain on investment properties of RM21.9mn. Results came within ours but above consensus, accounting for 97% and 108% of ours and consensus full-year estimates.

• No dividend was declared during the quarter under review. However, we expect the board to propose a final dividend of 12sen/share in Jan-18, which will be subjected to approval in an AGM to be held in Feb-18.

• SPB’s FY17 normalised net profit grew 31.0% YoY to RM58.7mn, underpinned by a revenue growth of 15.5% YoY to RM140.2mn. Segmental wise, property investment division’s normalised PBT decreased 6.0% YoY largely due to lower occupancy rates. Meanwhile, property development division’s FY17 pretax losses narrowed 5.3% YoY to RM16.6mn from RM17.6mn a year ago, as the FY16’s results were impacted by higher marketing and administrative costs arising from the official launch of Aira Residence last year. Australian operation was the star performer, with the division’s FY17 normalised PBT surged 54.8% YoY RM32.6mn. The stellar performance was mainly attributed to higher income from the residential development in Piara Waters, Perth and Point Cook in Melbourne.

• QoQ, the group’s 4QFY17 normalised net profit decreased 24.7% to RM13.5mn, largely due to higher effective tax rate. Nevertheless, 4QFY17 normalised PBT grew 35.2% on better performance across all the divisions, with the exception of property investment division which declined 22% due to lower occupancy.

Impact

• We updated our earnings model to incorporate the actual FY17 results. The impact to our earnings forecasts is negligible.

Outlook

• Going forward, Aira Residences (GDV: RM850mn), which is expected to be completed by 2021, will anchor the group’s property division earnings. As for the planned re-launch of the Bukit Permata project, management maintains the targeted launch date in the first half of 2018. However, the redevelopment of Wisma Damansara in Damansara Heights has been put under review following the recent Government's freeze on approvals for development of shopping complex, offices, serviced apartments and condominium priced above RM1.0mn each. We are not overly surprised with the decision and the outlook for the high-end condominium segment remains

lacklustre. Recall, we highlighted our concerns on the potential delays that prompted our downgrade on SPB’s rating to Hold (from Buy previously) in our 2018 strategy report.

Valuation

• Post house-keeping, our target price is revised slightly to RM5.28 from RM5.27 previously, based on blended CY18 PE/PB ratio of 14x/1.0x. SPB’s premium valuation against its peers is justified as its prized asset in Damansara Damansara Town Centre could be easily worth RM1.1bn (representing 64% of the group’s market cap of RM1.7bn), if we benchmark it with recent transacted price. In addition, the group’s net liquid assets stand at RM782mn or a substantial RM2.28/share. This makes up 45% of the group’s market capitalisation. With a potential return of 7.6%, we maintain Hold recommendation on SPB.

Source: TA Research - 28 Dec 2017