- We maintain our HOLD rating on UEM Sunrise (UEMS) with a lower fair value of RM0.94/share (vs. RM1.28/share previously) on our guarded outlook on UEMS’ near-term prospects amid weaker sentiments in the local property market, particularly in Johor. Reflecting our conservative stance, we have also widened the discount attached to its NAV/share (i.e. from 45% to 60%).

- UEMS reported flattish 1H15 earnings of RM137mil on the back of a 7% decline in revenue. Bottomline was partly boosted by:- (i) over RM20mil in dividends it received from one of its units that is being winded up; and (ii) LAD payments from contractors.

- 1H earnings accounted for only 29% of our full-year estimates (consensus: 27%). The top three revenue contributors for the quarter were Teega @ Puteri Harbour (RM227mil), Quintet in Vancouver (RM103mil), and Arcoris in Mont Kiara (RM80mil).

- We retain our FY15F net profit forecast of RM466mil for now as there could still be lumpy strategic land sales at SILC Phase 3 and Puteri Harbour in Iskandar Malaysia that could prop its earnings.

- SILC Phase 3 (197 acres) could be launched by late-3Q15, with about half of the 86 plots to be offered at a base price of ~RM80psf. Infrastructure works are due to be completed by next April (currently: >50% completed). Potential interest has been largely local.

- Any delays in these strategic land sales will however, exert some pressure on UEMS’ base profit target of RM500mil, in our view.

- New sales achieved for 2Q15 slowed to RM210mil vs. RM390mil (1H15: RM600mil vs. RM439mil in 1H14). Aurora Central Melbourne contributed to ~45% of total 1H sales.

- On a more positive note, response to its new launches in 1H15 – Sefina @ Mont Kiara (RM307mil) and Serene Heights, Bangi (RM181mil) – has been rather encouraging. Both projects achieved booking rates of ~50%, with the former being offered at ~RM850psf.

- Moving into 2H15, Estuary@Puteri Harbour was launched a fortnight ago and achieved overall bookings of ~40%. In Australia, Conservatory – UEM’s second project in Melbourne (GDV: A$274mil) – will be unveiled soon. The allocation to Chinese investors (~25%) has been fully taken up. An international preview will be held in the coming weeks, ahead of its official launch in October.

- We nevertheless believe the real litmus test for UEMS is the conversion of these commendable bookings into actual sales, especially those within the local market.

Source: AmeSecurities Research - 18 Aug 2015