BRDB’s annualised 1QFY10 net profit was within our expectation but 36% below consensus estimates. As expected, 1QFY10 y-o-y and q-o-q turnover fell marginally by 7% on lower property sales and diminishing unbilled sales due to lack of new launches. Net profit, however, improved by 16% y-o-y and 18% q-o-q on Mieco’s improving operating performance. We are leaving our earnings forecast unchanged for now. As the stock price has now fallen substantially inline with other property counters, we are upgrading the stock back to a Trading Buy, with an unchanged CY10 target price of RM1.83 based on 0.52x CY10 P/NTA.
FY10 earnings to fall. We are projecting FY10 earnings to fall by some 20%-30% y-o-y as the company’s currently high property unbilled sales will be largely exhausted sometime in FY10 once the Troika is completed and handed over (One Menerung was completed in 4QFY09), coupled with slow new property sales and a lack of new launches. In fact, it has begun to feel the impact in 1QFY10 when turnover fell marginally by 7% y-o-y and q-o-q.
To launch a handful of prime projects. Although BRDB holds a handful of prime upcoming projects, its hesitation in launching them in recent months was mainly due to its pessimism on the market. These projects include: (i) 2 office towers and a ˜RM250m condo in CapSquare; (ii) an estimated RM440m and >RM700m worth of condos in Hartamas II and Bukit Bandaraya respectively; (iii) >RM700m low-rise condos in Taman
Duta; (iv) ˜RM2bn integrated mixed development next to the Batu 3 toll along the Federal Highway in Subang Jaya, and finally; (v) the impending Oman JV to develop a ˜RM6bn seafront project. As some of these projects would be sited on the last few remaining prime landbanks in their respective vicinity, BRDB had held back from jumping into the bandwagon by offering discounts and innovative financing schemes to boost sales to meet targets at the expense of its earnings margin. The company viewed the timing of those launches in accordance with the property cycle as being more important in order to maximise shareholder value in the long run. As a result, it had exhausted its unbilled sales, which contributed to the weaker earnings in 1QFY10.
Well-positioned to ride on 2011 upcycle. Management’s strategy is in line with our view of the Malaysian property cycle. As the market, particularly for high-end condos, will only warm up in 2H10 before the 2011 upcycle, BRDB will be launching Phase 1 of its Hartamas II mid-end condos (worth about ˜RM300m) and CapSquare Condos 2 projects (˜RM250m) in 2H10. In saving the best for last, BRDB will only launch its 2 prime luxury projects in Taman Duta and Bukit Bandaraya in early 2011. With these projects all lined up for launch from 2H10, BRDB is poised to ride high in the impending 2011 upcycle.
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