- We maintain our HOLD rating on UEM Sunrise (UEMS) UEMS with a higher fair value of RM1.16/share as we lower the discount attached to its NAV (from 60% to 50%) despite our earnings downgrade post its 3Q15 results.

- This takes into account some tangible results from the group’s conscious move to diversify its landbank, notably in Melbourne, Australia.

- UEMS reported 9M15 results that were below expectations; headline earnings fell 11% YoY to RM185mil. This accounted for only 40% of our previous forecast (consensus: 37%). The lower YoY earnings were due to the completion of certain projects (e.g. Summer Suites), lower progress on Quintet Phase 2 and slower sales in Johor.

- We had earlier expected the earnings gap to be filled by some lumpy strategic land sales (e.g. from SILC Phase 3) in 4Q15. With one more month to go before the year ends, the prospects of this happening appear highly unlikely.

- Management explained that there are still interested buyers for its strategic land in Johor. However, the asking prices are still below its target amidst a soft property market.

- On a more positive note, UEMS achieved new property sales of RM1.1bil for 9M15. International projects (Aurora Melbourne Central, The Conservatory and Quintet) made up 52% of this total, pitching in RM620mil.

- With one quarter to go, UEMS remains optimistic of hitting its RM2bil target for FY15F. To be sure, 4Q15 should be boosted en-bloc sales from two projects (i.e. Imperia Office Tower and Aurora Service Apartments), which should generate a combined RM600mil.

- Likewise, management expects to convert more bookings from its Conservatory project into SPAs in the coming quarter.

- Conservatory, its second development in Melbourne, has already achieved bookings of over 70% since its exclusive preview two months ago (take-up rate: 24% as at September).

- Nevertheless, we feel compelled to maintain our HOLD call in the absence of a stronger up-turn in UEMS’ presales, notably in Johor where a bulk of its landbank remains.

- While the long-term structural story of Iskandar Malaysia remains intact, buying sentiment remains weak for now, and is exacerbated by a rising supply of high-end residential units.

Source: AmeSecurities Research - 27 Nov 2015