FY19 CNP of RM708.4m came in within our target (103%) but above consensus’ (149%). FY19 sales of 3.14b were above our expectations of RM2.46b (127%) and management’s target of RM2.3b (136%). We like the strong sales momentum thus far, backed by effective campaigns as well as its inventory clearing efforts. Maintain FY20E CNP of RM656m for now and introduce FY21E CNP of RM699m on sales targets of RM2.5b each for FY20- 21. Maintain OP and TP of RM1.00. Within expectations. FY19 CNP of RM708.4m came in within our estimate (103%) but above consensus expectation (149%). The reason for the deviation with consensus is likely due to stronger-than-expected revenue recognition. FY19 sales of 3.14b came above our expectation of RM2.46b (127%) and management’s target of RM2.3b (136%). Sales were mainly driven by marketing campaigns (i.e. Primetime 8, Pop Raya and Spotlight 8) and sales of completed projects. FY19 dividend of 3.0 sen is below our forecast of 4.0 sen (74%).

Results’ highlights. YoY, FY19 top-line was up (30%) driven mainly by the property segment (+37%) on increased recognitions from projects such as Denai Alam, Bukit Jelutong, Nilai Utama, Bandar Bukit Raja, Serenia City and Putra Heights township, KLGCC Resort and Cantara Residences. All in, CNP was up by 1,059% on: (i) higher interest income (106%), (ii) lower losses from associate and JCE contributions (-57%), and (iii) lower effective tax rate of 11%. QoQ, top line was up by a moderate 5% due to similar reasons mentioned above, while better EBIT margin (+2.9ppt) from better product margins and a normalized effective tax rate of 24% (vs. 62.5%), allowed bottom-line to increase by 69%.

Outlook. We expect FY20-21 to see sales of RM2.5-2.5b while upcoming launches in FY20 will consist mostly of landed residential projects mostly in townships. Unbilled sales of RM1.6b provide <1-year visibility.

We maintain FY20E CNP of RM656m and introduce FY21E CNP of RM699m. We maintain our sales targets to RM2.5b for FY20-21E given the challenging climate and may look to increase our targets once confidence in market conditions improve. However, we lower our FY20E dividends to 2.9 sen (from 3.9 sen) and introduce FY21E dividend of 3.1 sen on a lower payout ratio of 30% (vs. 40%), implying yields of 3.8-4.1%.

Maintain OUTPERFORM and TP of RM1.00. We maintain our conservative adjusted P/BV valuation method to ascertain the trough valuations of property stocks amid the prevailing market down-cycle. Our TP is based on P/BV of 0.71x (from 0.75x) @ -0.5SD of its 3-year historical band) on an adjusted BV/share of RM 1.40 (from RM1.36) after imputing a 40% discount to its latest available inventory level of completed properties). SIMEPROP remains an OP on the back of stable earnings and healthy sales momentum thus far, commendable inventory clearing efforts (RM6.5b from RM6.7b QoQ) and low gearing level of 0.25x.

Risks include: (i) weaker-than-expected property sales, (ii) weaker margins, (iii) changes in real estate policies, and (iv) changes in lending environment.

Source: Kenanga Research - 27 Feb 2020