Review

• Excluding exceptional items amounting to a loss of RM55.0mn, Selangor Properties Bhd (SPB) reported 1QFY18 normalised net profit of RM14.1mn. Exceptional items include the unrealised foreign exchange losses of RM52.8mn and fair value loss on financial assets of RM2.2mn. Results came in below ours but within consensus, accounting for 19% and 26% of ours and consensus full-year estimates. We believe the variance was due to higher marketing cost incurred to promote the sale of Aira Residences couple with slow initial construction progress.

• SPB’s 1QFY18 revenue decreased 5.8% YoY to RM28.6mn mainly due to the strengthening of Ringgit against AUD in the translation of the results of Australian Operation for consolidation purposes. Normalised net profit grew at a faster pace of 6.0% YoY due to lower finance cost and effective tax rate.

• QoQ, the group’s 1QFY18 revenue decreased 36.6% but normalised net profit increased 3.9% QoQ. The group’s bottom line was mainly lifted by lower effective tax rates.

Impact

• Our FY18-20 earnings forecast are revised lower by 4-11% after incorporating the followings: 1. Lower property revenue recognition, and; 2. Higher selling and marketing expenses to promote Aira Residence.

Outlook

• Property division earnings is expected to be anchored by Aira Residences (GDV: RM850mn), which is expected to be completed by 2021. Management expects higher contribution from Aira Residences this year underpinned by increase in marketing efforts. The planned re-launch of the Bukit Permata project is now targeted in 2QFY18. 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 lacktustre.

Valuation

• Following the change in earnings, our target price is revised lower to RM5.10 from RM5.28 previously, based on blended CY18 PE/PB ratio of 14x/1.0x. With a potential return of 9.8%, we maintain Hold on SPB, as we see chances of value realisation is slim over the next 12-month.

Source: TA Research - 1 Mar 2018