Results

1Q14 net profit declined 70.9% yoy to RM61.5m, making up 12% and 15% of HLIB and consensus estimates, respectively.

Deviations

No land sales booked in 1Q14. However, we do note that UEMS could be booking in as much as RM760m of land sales in 2H, which would make up for the shortfall in 1Q.

Dividends

None.

Highlights

Results distorted by lumpy land sales. Topline was lower yoy due to absence of land sales in 1Q14, vs. RM400m booked in for the land sale to Liberty Bridge in 1Q13. Ex land sales, revenue rose 29% yoy.

Slow sales in 1Q, amounting to just RM123m. The only new project launch was Phase 1 of Almas @ Puteri Harbour, which has seen just 7% takeup since its launch in mid-Jan, a sign that the demand situation continues to be challenging in Johor.

Counting on a stronger 2H. With 1Q sales amounting to just RM123m, we note that UEMS is RM3.1bn short of its sales target of RM3.2bn with 3 quarters to go. Management plans to achieve this by launching close to RM3.0bn of new projects in 2H, as it believes that demand will pick up by then. We are lukewarm on this front, given previous instances of delayed launches such as Bangi (RM250m, previously guided to launch in Oct 2013) and Angkasa Raya (RM1.0bn, originally slated to launch in 3Q12). We see an urgency for UEMS to carry out its stated launch plans in 2H (to sustain longer term earnings beyond the 1.8x unbilled revenue) given that its existing projects are more than 90% sold (not including the newly-launched Almas).

Healthy earnings visibility, with RM4.1bn unbilled sales amounting to 1.8x FY13 revenue.

Risks

Nusajaya fails to achieve critical mass; failure to achieve RM3.2bn sales target; high-beta stock.

Forecasts

Reduced by 11-19% to reflect subdued outlook.

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 (>2x sector average).

Valuation

Given the sector headwinds UEMS faces currently, we maintain our HOLD call and TP at RM2.23 (45% discount to RNAV). This values UEMS at 20x FY15E P/E, which is currently at the top end of the sector.

Source: Hong Leong Investment Bank Research - 27 May 2014