Review

• Excluding exceptional items amounting to a gain of RM0.6mn, Selangor Properties Bhd (SPB) reported 1QFY19 normalised net profit of RM22.4mn. Exceptional items include unrealised foreign exchange losses of RM5.2mn and fair value gain on financial assets of RM5.8mn. Results came in within expectations, accounting for 28% and 25% of ours and consensus full-year estimates respectively.

• SPB’s 1QFY19 normalised net profit surged 59% YoY to RM22.4mn as revenue jumped 67% YoY to RM48.0mn. The increase in net profit was largely due to better performance achieved from property development and the Australian operation. The better performance for property development performance was anchored by higher work progress recognition of AIRA Residences. Meanwhile, Australian Operation’s performance was boosted by higher dividend income from investments in land development projects and higher rental income.

• QoQ, the group’s 1QFY19 net profit more than doubled to RM22.4mn despite revenue only increasing by 3%. Net profit advanced at a faster pace largely due to lower-than-expected effective tax rate of 11.1% (4QFY18: 32.2%)

Impact

• Maintain earnings forecast.

Outlook

• Aira Residences (GDV: RM850mn), which is expected to be completed by 2021, will anchor the group’s property division earnings. Management expects higher contribution from AIRA Residences this year underpinned by heightened marketing efforts. Meanwhile, the group is expected to re-launch Bukit Permata project in 1HFY19. We do not rule out the possibility of further delays given the slow demand for luxury homes. As for the redevelopment of Wisma Damansara in Damansara Heights, management will only re-access the feasibility of this development, if the freeze on shopping complex, offices, serviced apartments and condominium development priced above RM1.0mn each are revisited or lifted.

• SPB’s shareholders had approved the proposed selected capital reduction and repayment exercise (SCR) on 14 Feb. Following that, SPB had on 21 Feb filed a petition to the High Court of Malaysia at Kuala Lumpur to obtain an order under Section 116 of the Companies Act 2016 to proceed with the process of SCR. The board expects the proposed SCR to be completed in 2QCY19.

Valuation

• We maintain our target price at RM6.30, at par with the revised takeover offer price from its major shareholders. Accept offer.

Source: TA Research - 18 Mar 2019