SPB in net cash position to redevelop Wisma Damansara

Selangor Properties Bhd (Sept 27, RM4.77)

Maintain buy with an unchanged target price (TP) of RM5.98: Excluding the unrealised foreign exchange gains amounting to RM28.7 million, Selangor Properties Bhd (SPB) reported a nine months of financial year 2017 (9MFY17) normalised net profit of RM45.1 million. Results came within ours but above consensus full-year estimates, accounting for 74% and 84% respectively.

SPB’s 9MFY17 normalised net profit grew 29.9% year-on-year (y-o-y) to RM27.1 million, underpinned by a revenue growth of 10.4% y-o-y to RM94.9million.

Its Australian operations reported a strong profit before tax (PBT) growth of 49.7% y-o-y, driven by a higher rental income and a favourable exchange rate. The property investment division’s PBT increased marginally by 0.6% y-o-y largely due to lower operating expenses. Meanwhile, the property development division’s 9MFY17 pre-tax losses widened to RM11.1 million from RM7.9 million a year ago, largely due to higher marketing and administrative costs in conjunction with the launch of Aira Residence.

Quarter-on-quarter (q-o-q), the group’s third quarter of FY17 (3QFY17) normalised net profit grew 29.9% to RM18 million, largely due to lower effective tax rate (-3.5 percentage points q-o-q). Meanwhile, the property development division also contributed to the improvement, as the division’s pre-tax losses narrowed to RM3.2 million in 3QFY17 from RM4.7 million a quarter ago, on lower staff costs and operating expenses.

With more than 60% of the 105 units of Aira Residence — which have a gross development value (GDV) of RM850 million — having been booked to date, management is confident of meeting its internal sales target of 50% by end-2017.

As for the planned relaunch of the Bukit Permata project, management maintains that the official launch will be in early 2018. Meanwhile, the proposed redevelopment of the group’s land bank in Damansara Heights is in its initial planning stage with considerations on designs which will provide integration and connectivity with the nearby mass rapid transit project. Specifically, we understand that preliminary planning works for the Wisma Damansara site has commenced and we have assumed the official launch of the site in two years’ time (FY19).

Based on the latest quarterly results, the group is in a net cash position. As such, we believe there is plenty of room for SPB to gear up further for the redevelopment of Wisma Damansara and/or other landbank replenishment. — TA Securities, Sept 27

This article first appeared in The Edge Financial Daily, on Sept 28, 2017.

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