- We maintain Buy on UEM Sunrise (UEMS) with a lower fair value of RM1.88/share (previously RM2.34/share), pegged at a 40% discount to a revised NAV/share – following the release of its FY14 results. We have introduced an FY17F net profit of RM552mil, implying a 7% YoY growth.

- UEMS’ full-year net profit of RM480mil came in just a tad below our expectations (~6%). Despite a 10% YoY increase in revenue, core earnings fell 18% YoY largely on lower margins recognised from land sales in Nusajaya.

- During the quarter, the group recognised land sales to Scope Energy (KLK-UEM JV) and Fastrack Iskandar Sdn Bhd totaling RM771mil.

- As the sales of these two parcels of prime land serve as the next catalysts for Iskandar Malaysia’s development, margins from strategic land sales dipped to 36% in FY14 vs 58% a year earlier.

- New property sales of RM2.4bil achieved in FY14, although lower than FY13’s RM3bil, still trumped the group’s revised target of RM2bil in August 2014.

- The top three sales contributors were: (i) Aurora Melbourne Central (RM1.5bil); Residensi 22 (RM403mil) and Symphony Hills (RM108mil).

- Notably, the Aurora Melbourne project – UEMS’ first foray into Australia – was an instant success with a 95% take-up rate achieved within two weeks of its preview in October 2014.

- New launches for FY15F include Estuari, Denai Nusantara, Residential South and Citra Nusantara in Nusajaya. Beyond Nusajaya, upcoming projects include Serene Heights (Bangi), Floresta Solaris 3, Sefina (Lot 1887) and Artisan Hills, Kajang.

- We maintain a long-term BUY on UEMS. Trading at a steep 56% discount to our revised NAV/share, we believe investor concerns over UEMS’ relatively large exposure to the Johor property market (~53% of existing landbank) has been largely priced-in. This is backed by unbilled sales of RM5.3bil as at end-December 2014 (~3.2x FY14 property development revenue).

- Furthermore, management’s conscious efforts to diversify its development exposure beyond Nusajaya appears to be bearing fruits, as seen from the roaring success of Aurora Melbourne.

- In line with broader market, UEMS’ foreign shareholding dropped to 12.8% in January 2015 from 14.9% a year earlier.

Source: AmeSecurities