KUALA LUMPUR: Selangor Properties’ 1HFY10/18 core net profit came in below expectations, at 40% of CIMB Equities Research’s full-year estimate and 42% of the Bloomberg consensus number.
The research house said on Wednesday the underperformance was due to higher-than-expected costs arising from AIRA Residence’s marketing efforts.
“Excluding forex loss (RM53.8mil), gains from disposals (RM2.2mil) and mark-to-market loss (RM11.5mil) on financial and investment assets, 1H18 core net profit rose 23% on-year on stronger revenue (+7% on-year),” it said.
CIMB Research said the higher 1H18 revenue was driven by improvements in property development (+47.6% on-year) supported by AIRA Residence, and better sales from Australian operations (+16.2% on-year) due to higher rental income, which offsets the 15.5% on-year sales decline in investment holding.
However, 1H18 recorded a loss before tax of RM28.6mil, dragged down by forex losses in investment holding with the strengthening of RM vs. S$. This offsets the narrowing losses in property development and higher profits from the Australian operations.
“We believe the overall property outlook for 2018F remains bleak, amid an unfavourable macro environment.
“The approval freeze on luxury projects (including shopping complexes, offices, serviced apartments and condominiums priced above RM1mil) starting Nov 1, 2017, low affordability and mismatch between supply and demand, are still risks to private developers’ sales.
“The group has put mixed development Wisma Damansara under review due to the muted market outlook,” said the research house.
CIMB Research cut our FY18-20F EPS forecasts by 3%-8% to reflect the higher-than-expected marketing expenses and changes in project timelines.
“Nonetheless, we still expect stronger 2H18 earnings in the property development division, arising from work progress recognition on units of AIRA Residence sold,” it said.
The research house said although earnings prospects seem intact in FY18F, the stock may remain undervalued due to its low returns on equity of just 2%-5% in FY18-20F.
It said the target price is cut to RM4.40 as it widened its realised net asset value discount to 60% from 50% previously, after factoring in the rising interest rate environment.
The large discount reflects the uncertainty over its land bank development timeframe and low trading liquidity. Maintain Hold.
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