Highlights

We met with UEMS and foresee some challenging times ahead for in IDR.

Blow to foreign buyers, which make up close to 30% of UEMS’ sales, of which 75% are from Singapore. We opine that the slew of tightening measures as per Budget 2014 will dampen foreign appetite for its new launches, and increase reliance on local buyers.

Sustainable local participation. We believe the new cooling measures will be good for giving locals a chance to participate in IDR, and this trend has already been in the making. As an example, Imperia, which was launched in 2011, saw 25% takeup by domestic buyers. Teega, which was launched one year later, saw 50% participation from local buyers. We also learnt that East Ledang and Nusa Idaman have 85- 90% occupancy rate, which suggests there is a strong base of owner occupiers buying into UEMS’ projects, and not just purely speculators.

High-end launches for next year. D’Estuary and Residential South will be launched next year, with GDV of RM4.8bn and RM1.85bn respectively. We understand the units for these are priced above the RM1m threshold, hence the new ruling of price floor for foreigners of RM1m will have limited impact.

DIBS impact. DIBS-financed projects (Teega, Verdi, MK22 etc) collectively make up 22% of GDV, hence the removal of DIBS will create some near term pain for UEMS’s sales. This is partially mitigated by the fact that its DIBS projects are nearing the tail end, other than MK22.

Risks

Nusajaya fails to achieve critical mass; failure to achieve RM3.0bn sales target; high-beta stock.

Forecasts

Maintained.

Rating

HOLD

Positives: highly liquid proxy to property sector; large war-chest for landbank acquisitions; rich in newsflow.

Negatives: Share price is highly news-driven; vulnerable to external slowdown; highest P/E multiple in the sector.

Valuation

Given that UEMS faces sector headwinds, especially in light of its ambitious RM3.2bn launch pipeline for 2H, we maintain discount to RNAV at 40% and TP at RM2.43, as well as our HOLD recommendation.

Source: Hong Leong Investment Bank Research - 7 Nov 2013