CYCLE AND CARRIAGE BINTANG BHD

region of Peninsular Malaysia, with 53% of the total undeveloped land bank and 55% of the total remaining GDV.

The group has also ventured into abroad such as Vietnam, Singapore, Australia, China, Japan and the UK. S P Setia has an effective undeveloped land bank of 309 acres with a remaining GDV of RM20.2bil.

As of the first nine months of FY18, S P Setia has launched projects with total GDV amounting to RM4.64bil while another RM1.6bil is planned for the remaining months of this year, bringing the total GDV to RM6.24bil for the year.

“Meanwhile, the company’s unbilled sales of RM7.92bil will be progressively recognised over FY19FY21,” according to AmInvestment.

The brokerage said that in the short to medium term, the property market remained subdued with many potential buyers having difficulty in obtaining loans due to their already-high debt service ratios.

Meanwhile, a lack of overseas contributions and slow progress billings from local projects are the key factors for weaker earnings in 2018.

Moreover, management noted that there was no evident pick-up in sales during the month of October and conditions remain challenging.

“We expect net profit to improve by 34% to RM353.6mil in FY19, driven by higher sales due to stamp duty waiver, inventory clearing efforts and lower interest expenses as a result of repayment of borrowings from the sale of Battersea Phase 2 commercial assets.

“We expect FY20 earnings to grow to RM402.8mil with additional earnings recognition from Battersea Phase 2 residential in the end of FY20,” AmInvestment said.

The research house also expects net gearing to drop to about 20% in FY19 following the sale of Battersea Phase 2 commercial.

It said it has reinitiated “hold” coverage and the stock is valued at RM2.39 per share based on a conservative 45% discount to revised net asset value, implying forward price-earnings ratios of 32.1 times, 24 times and 21 times for FY18FY20, respectively.

“Nonetheless, we believe the outlook for S P Setia shall remain stable premised on its strong unbilled sales of RM7.92bil and overseas contribution in 2020,” the brokerage said. Target price: AFFINHWANG is negative on the disposal of Cycle and Carriage Bintang (CCB) where the group will cease to be the 49% shareholder in Mercedes-Benz Malaysia Sdn Bhd (MBM) as Daimler AG (DAG), which owns 51% in MBM, looks to acquire the remaining stake for RM66mil.

“It will strip off CCB’s recurring dividend income of RM11.2mil,” it said.

Consequently, CCB is obliged to sell its 49% stake in MBM to DAG.

The proceeds will be used for working capital and repayment of borrowings.

Following the disposal, CCB will no longer be entitled to the annual dividend income of RM11.2mil.

Post-disposal, CCB will remain as the leading Mercedes dealer with the largest network in Peninsular Malaysia.

“We think CCB’s profitability will continue to face headwinds from the intense competition from other Mercedes dealers and internally, the higher capital expenditure (building of Sungei Besi showroom) and operating expenditure (mainly staff costs, professional fees, marketing and promotional expenses),” analysts said.

However, the research house believes the recent shift towards higher margin mix (from lower margin cars) sparks hope for an uptick in margins.

Following the disposal, the brokerage has cut core its forecast earnings per share by 38%-57% over FY19-FY20 to reflect the absence of the annual dividend income.

In tandem with the earnings downgrade, AffinHwang has lowered its target price to RM1.48 from RM2, based on the estimated 0.5 times calendar year 2019 book value (from 0.3 times) due to the challenging outlook.

The upside risks include stronger-than-expected sales and profit margins.