To Be A Washout 2H10
BRDB’s annualised 9M10 core net profit, excluding the RM82.7m exceptional gain from property revaluation surplus, was 50% and 77% below our and consensus estimates. 9M10 y-o-y and q-o-q turnover fell by 33% and 16% respectively on lower property sales, exhausting unbilled sales and delays in progress billing.
Hence, core net profit plunged 77% y-o-y and 100% q-o-q, causing a slight loss in 3Q10. Changes to our assumptions on sales of unsold stocks in One Menerung and the Troika prompt us to slash our forecasts. As these adjustments mainly affect our FY10 numbers only, our CY11 TP is adjusted to just RM3.00 (from RM3.06), based on a CY11 P/NTA of 0.8x. Maintain BUY.
3Q10 disappoints. We had expected FY10 to be a washout year for BRDB as it continued to rapidly exhaust its unbilled sales amid its reluctance to launch new projects prior to mid- 10 for the past 24 months. However, its 9M10 results turned out to be worse than anticipated.
After the completion of One Menerung and the Troika, the only major earnings contributor for the property division in 3Q10 was the progress billing from the RM439m CapSquare Office Tower 2. By 4Q10, its unbilled sales would be at a minimal, estimated at ?RM102m.
This will comprise the 60% sold RM80m semi-Ds launched in Bandar Permas Jaya (Johor) and the 20% take-up from the recent soft launch of the RM270m CapSquare Condo 2. Progress billings from these projects will be minimal in FY10 until early FY11.
Warming up to the next upcycle. The repercussion from delaying the launch of its properties until the next upcycle was the rapid exhaustion of its unbilled sales and the
expected sharp fall in FY10 earnings. However, as the residential market is gearing up for the next upcycle, BRDB soft-launched its CapSquare Condo 2 in Aug ’10. BRDB also
expects to launch its Phase 1 Hartamas II high-rise condo project worth RM240m in early 2011.
The remaining phases of Hartamas II, worth RM480m, will be launched progressively in 2011/12. Coming up for launch in 2011/12 is the low-rise condos in Taman Duta worth
RM750m and the high-end condos in Bukit Bandaraya worth RM750m. Their successful launch amid an anticipated improvement in the real sector outlook will ensure that BRDB’s strong earnings growth will begin anew in late FY11 and onwards, after the blip in FY10.
A stock to watch in 2011. From the blip in FY10, earnings growth will recommence sometime in FY11 from the progress billings of the recently launched and to-be-launched
property projects amid the expected upcycle in mid-to-high end residential properties between now and 2012/13.
Changes to assumptions on sales of unsold stocks in One Menerung and the Troika prompt us to slash our FY10 and FY11 core earnings downwards by 42% and 15% respectively. Our TP is adjusted slightly to RM3.00 (from RM3.06), based on CY11 P/NTA of 0.83x. Maintain BUY.
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