9MFY20 core PATMI of RM98.8m (-55.8% YoY) were above our expectations largely due higher than expected sales take-up of ongoing projects and sale of completed inventories in the current quarter. RM1.4m worth of sales was bn achieved in 3QFY20, bringing 9MFY20 sales to RM2.3bn. Notably, sales as of 31 Oct stands at a commendable RM2.9bn while bookings stood at RM1.7bn. Unbilled sales stood at RM9.8bn as of 3QFY20, representing a strong cover ratio of 2.7x. We increase our FY20 earnings forecasts by +45.4% and maintain our HOLD rating with a lower TP of RM0.75 with a higher discount at 85% to RNAV of RM5.01.

Above expectations. 3QFY20 recorded core net profit of RM73.4m (from -RM1.6m QoQ, +3.3% YoY), bringing 9MFY20 core PATMI to RM98.8m (-55.8% YoY) which formed 115% and 73.2% of ours and consensus full year forecasts, respectively. The results were above our expectations largely due higher than expected sales take-up of ongoing projects and sale of completed inventories in the current quarter. Nonetheless, we note that 3QFY20 recorded an impairment of -RM336m in its Battersea project given the decrease in selling prices amidst the soft market. 9MFY20 core PATMI was derived after excluding EIs of -RM475.3m (mostly stemming from impairment worth –RM145m on completed inventory and -RM336m from its JV in Battersea)

Dividend. None declared.

QoQ. A core PATMI of RM73.4m was recorded (from -RM1.6m) largely due higher than expected sales take-up of ongoing projects and sale of completed inventories in the current quarter coupled with the MCO impact in the preceding quarter.

YoY. Core PATMI remained largely flat at RM73.4m (+3.3%) despite revenue increasing by +15.9% largely due to lower margin project recognitions.

YTD. 9MFY20 core PATMI earnings fell -55.8% to RM98.8m largely hit by the MCO which led to the stop in operations and decrease in sales activity in 1HFY20.

Sales and launches. RM1.4bn worth of sales was achieved in 3QFY20, bringing 9MFY20 sales to RM2.3bn. Notably, the Group achieved sales of RM2.9bn as of 31 Oct. The Group maintains its sales target of RM3.8bn as it still has RM1.7bn worth of bookings pending conversion to sales. With regards to launches, the Group has launched over RM900m worth of products in the 9MFY20, with 4QFY20 launches largely dependent on market conditions. Management will continue focusing its efforts on clearing its completed unsold inventory. Unbilled sales stood at RM9.8bn as of 3QFY20, representing a strong cover ratio of 2.7x.

Forecast. We increase our FY20 earnings forecasts by +45.4% after imputing higher sales and progressive billings recognitions coupled with higher margins as we were previously too conservative on our assumptions. Note that the large percentage increase is largely due to a low base impact of our previous forecast.

Maintain HOLD rating with a lower TP of RM0.75 (from RM0.86) with a higher discount at 85% (from 80%) to RNAV of RM5.01 to reflect the ongoing weak property market. Despite earnings performing above our expectations, we expect the property market to remain challenging moving forward with the ongoing impact of Covid-19 on the broader economy alongside challenges in the Battersea project given the recent impairment . On the flip side, FY20 is expected to be a bottom year as FY21/22 will be supported by large foreign recognitions from the UK and Australian projects.

Source: Hong Leong Investment Bank Research - 16 Nov 2020