• UEM Sunrise’s net profit of RM155.8m for 1HFY17 is above ours and consensus estimates making up close to 70% of full year estimates. The net profit is lifted by gain from land sale in Johor and in Canada amounting to RM11.9m and RM371m respectively.

• Property sales declined by 8.3% yoy to RM391.7m (1H16: RM427.1m).

• For FY17, group is focusing on volume sales and maintaining its market position with possibility of more land divestment in order to counterbalance the rising cost from the property development side.

• The group intends to keep its net gearing up to a maximum of 0.65x which is above its comparative peers of 0.5x.

• We maintain SELL. Our TP of RM1.14 based on blended valuation of PER and PBV of 12.0x and 1.2x respectively.

Earnings improved

Qoq, group’s net earnings rose 54.3% in tandem with improvement in revenue. The surge in profits is chiefly due to land sale of Alderbridge in Canada amounting to RM371m.

Easy ownership scheme

The scheme which was launched last quarter as a means to assist buyers to own properties. The scheme works by rent-to-own with option to purchase within 24 months. We applaud the group’s efforts to come up with a creative strategy in order to clear inventories, however we are unsure if this scheme is workable. Nonetheless, we will continue to monitor the results.

Property outlook remains sluggish

Issues of concerns are i) earnings visibility which looks uncertain going forward, although the group expects to launch at least RM1.7bn of new projects with targeted sales of RM1.2bn for FY17. However we reckon it will be challenging for the group. For 1H17, the group only managed to achieve 32.6% from their target.; ii) its inventory build ups YTD stands at RM2.4bn which suggests there will be more aggressive marketing campaigns at least until 2018; iii) despite total unbilled sales of RM4.1bn, bulk of these comes from Australia project making up 65%; and iv) the impending higher net gearing due to higher cost to be incurred from Australia’s projects. Our revenue growth projected included landsales which in our view is not sustainable in the long run.

We maintain our SELL call with a TP of RM1.14 based on blended valuation of PER and PBV of 12.0x and 1.2x respectively.

Fundamentally, the group has huge land bank reserve of 10,679 acres of which 73% is located in Nusajaya. However, we do not expect conditions to turn favourable in the near to mid-term.

Source: BIMB Securities Research - 24 Aug 2017