-  We maintain our BUY call on UEM Sunrise (UEMS) but lower our fair value to RM2.34/share (vs. RM2.78/share previously) following the weaker 2Q14 results. Our lower fair value also factors a steeper discount of 40% (previously: 30%) to its revised sum-of-parts value to reflect management’s lower new sales guidance for FY14F amid a more cautious launching outlook and weaker sentiments within the Johor property market.

-  1H14 earnings fell 57% YoY to RM136mil, although part of this was due to the inclusion of strategic land sales in Puteri Harbour (~44 acres) a year ago. This came in at c.23% of our previous FY14F net profit forecast (consensus: 25%).

-  Even as some strategic land sales are tipped to filter through in 2H14, we believe that these would be insufficient to make up for the weaker 1H14 vis-a-vis our previous forecast.

-  Excluding the Puteri Harbour land sale, 1H14 property development revenues rose 14% YoY. Key profit contributors were East Ledang, Imperia (Puteri Harbour), Summer Suites, and Residensi 22.

-  The response for a few of its new launches has been rather muted. For instance, the Almas @ Puteri Harbour –launched in January (GDV: RM258mil) – saw a take-up rate of only 20% to-date.

-  While 2Q14 sales were higher sequentially (RM316mil; +2.5x QoQ), the quantum was still below expectations as 1H14 sales (RM439mil) only made up 14% of the group’s initial sales target of RM3.2bil.

-  As such, we have clipped our FY14F net profit forecast by 14% (FY15F: -15%, FY16: -13%) largely to realign our FY14F new sales assumption to management’s lowered guidance of RM2bil.

-  After holding back on some of its launches, UEMS is looking to unleash some new launches in the next few months. This includes D’ Estuary (next to Puteri Harbour), Serene Heights (Bangi), and the La Trobe project in Melbourne, Australia.

-  But the saving grace for 2H14 will likely come from the expected recognition of c.RM739mil (KLK: RM533mil, Motorsports City: RM156mil, and Horizon Hill: RM50mil). We expect these land sales to rake in gross margins of c.50%. Unbilled sales remains healthy at c.RM4bil in June 2014.

-  Equally, UEMS’ new CEO could come aboard by early next month after several months of management vacuum. Its foreign shareholding stands at 13% as at end-July.

Source: AmeSecurities