KSL ... Feb10

TA on KSL @ Target Price : RM1.59

1. Encouraging sales performance
4Q09 sales rose 44% yoy to RM55.7m (refer to Chart 1) underpinned by increasing demand for properties in Johor. On a cumulative basis, FY09 sales increased by 7.3% yoy to RM228m thanks to the overwhelming response to the promotional programme such as 100% loan facilities, free legal fee and stamp duty. This has boosted the group’s FY09 unbilled sales to RM115m (refer to Table 1) from RM63m a year ago. However, we are adjusting downward our FY09-10 sales forecasts to RM228m and RM260m respectively,
from RM250m and RM290 previously, to be in line with management guidance.

2.Results preview
Given the downgrade in our sales forecasts, we lower our FY09-10 earnings by 10%-14% respectively. As such, we are expecting KSL to report earnings in between RM13m to RM16m this Thursday, representing a significant growth in core net profit over year. The estimated stronger FY09 earnings can be attributed to higher progress billing.

3. Klang Valley project is ready to go
With regard to its first development project in the Klang Valley, we understand that the company has received 1st stage approval, pending on building plan permit before
the group can start launching the project. Based on management estimates, this project is now targeted to be launched in early 2Q10, a slight delay from 1Q10 as
guided previously. For a starter, the company would launch 300-400 units of terrace houses (32’x75’) with estimated GDV of approximately RM130m. We have assumed a sale of RM80m (take up rate of 62%) from this project for FY10.

4. Forecast
We downgrade our FY09-10 earnings by 10%-14% to reflect the change in our FY09-10 sales assumptions. We now assume KSL’s FY10-11 sales to reach RM260m (down from RM290m previously) and RM315m (unchanged) respectively.

5. Recommendation
Given the change in our earnings estimates, we downgrade KSL’s fair value to RM1.59/share from RM1.84/share previously, based on an unchanged PER of 8x CY10 EPS. We continue to like KSL given: 1) its ability to garner above-average development margins of >40% underpinned by its centralised procurement units that help in reducing development cost; and 2) strong financial standing with net cash position. Maintain Buy.