SBCCORP (5207) : SBC Corp - Jesselton Quay is the key…
Target RM2.20 (Stock Rating: ADD)
With the annualised number at only 47% of forecasts, SBC’s 1HFY15 net profit was below market and our expectations, mainly due to weak overall sales and delays in the Jesselton Quay (JQ) launch. To reflect the soft sales demand, we cut our FY15-17 EPS forecasts and lower our target price (we widen our discount from 40% to 50% discount to its RNAV), but SBC remains an Add. Potential rerating catalysts include securing final state government approval for the JQ project, and the current huge 70% share price discount to its RNAV.
1HFY15 net profit down 37%
Although 1HFY15’s revenue was up 15% yoy, net profit fell 36.7%. The weaker profits were mainly due to higher operating costs, likely higher A&P to boost overall sales. No interim DPS was declared, in line with our expectations. 1HFY15’s higher revenue was mainly from the Kiara East and The Cantonment Exchange project, but overall sales remained soft. Even its low-medium cost residential project in Batang Kali was affected by slower sales.
Waiting for JQ launch
The Jesselton Quay (JQ) project has been a major disappointment due to its approval delays. We were expecting SBC to launch the JQ project in mid-2014 but there have been continued delays in getting final state approval. We understand the company is targeting to launch RM300m worth of properties for this project once it gets approval, hopefully in the current 4Q. SBC had a positive start for JQ in Sep 2014 when the company signed a heads of agreement with Singapore hotel operator HPL Hotels & Resorts Pte Ltd to build the “Kota Kinabalu Hard Rock Hotel”. Development cost for the hotel is RM180m-200m. Our forecasts do not reflect potential earnings from this development.
RM200m outstanding sales
Outstanding sales amount to around RM200m, but this number could get a major boost when JQ is launched, hopefully before the year-end. The stock continues to trade at a huge 70% discount to our RM4.40 RNAV/share, but we are hopeful this RNAV discount would narrow with JQ’s maiden launch.
Source: CIMB Daybreak - 24 November 2014
