Review

• Excluding exceptional items amounting to a loss of RM51.8mn, Selangor Properties Bhd (SPB) reported 9MFY18 normalised net profit of RM50.7mn. Exceptional items include gains from a land disposal of RM1.4mn, unrealised foreign exchange losses of RM37.5mn and fair value loss on financial assets of RM15.7mn. Results came in within expectations, accounting for 79% and 74% of ours and consensus full-year estimates respectively.

• SPB’s 9MFY18 normalised net profit grew 16.6% YoY to RM50.7mn, underpinned by a 12.5% growth in revenue. The better performance was largely due to higher revenue achieved from the property development division (+52% YoY) and Australian operations (+22% YoY).

• QoQ, the group’s 3QFY18 net profit surged 17% to RM19.7mn, despite revenue only rising by 1.6%. Net profit accelerated at a faster pace due to: 1) lower finance cost and effective tax rates, and 2) property development division recording narrower losses.

Impact

• No change to our FY18-20 earnings forecasts.

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 an increase in marketing efforts. The re-launch of the Bukit Permata project has been delayed further to 4QFY18. We do not rule the possibility of more delays given the slow demand for luxury homes. Note that in our earnings model, we have assumed the official launch of Bukit Permata (GDV: RM125mn) in FY19.

• As for the redevelopment of Wisma Damansara in Damansara Heights, management has put redevelopment plans on-hold, until the government’s freeze on shopping complex, offices, serviced apartments and condominium development priced above RM1.0mn each is reviewed/lifted.

Valuation

• We maintain our target price of RM4.11 based on target average blended CY19 PE/PB of 9x/0.8x. In view of the prevalent oversupply of commercial and luxury residential sectors, we believe the government will become very selective in approving high-end real estate development. As such, we see the chance of landbank value realisation is slim over the next 12- month. Maintain Sell recommendation on SPB as the prolonged delay in new launches will further dampen the group’s property sales outlook.

Source: TA Research - 21 Sept 2018