Results

• Below Expectations: 1HFY15 PATAMI flat YoY at RM137m, accounting for only 29% of ours and consensus’ estimates, respectively.

Deviations

• Lower-than-expected revenue from property development and land sales.

Highlights

• QoQ: 2QFY15 revenue fell by 17% due to completion of Summer Suites and Imperia. However, PATAMI showed an improvement of 13% QoQ, mainly contributed by higher other income coupled with improved property development margin. Land sales is minimal in 2Q15 at RM4.4m versus RM16m in 1Q15.

• UEMS achieved sales of RM210m in 2Q15 bringing 1H15 sales to RM600m, accounting for 25% to 30% of company full year target of RM2bn to RM2.4bn. Upcoming main launches in 2H15 will be Conservatory in Melbourne (GDV:RM600m) and SILC Phase 3 (GDV:RM350m, 50% of 86 plots to launch). Conservatory received encouraging response in the pre-launched in China. Overall, we see downside risk to the full year sales target. We have factored in RM2bn new sales in our assumptions.

• Domestically, the recent 2 new launches Sefina, Mont Kiara (GDV: RM307m) and Serene Heights, Bangi (GDV: RM180.7m), have achieved take up rate of more than 50%.

• YTD unrecognised revenue stood at RM3.8bn, representing 1.4x of UEMS’ FY14 revenue.

Risks

• Slowdown in Nusajaya sales; failure to achieve sales target; high-beta stock.

Forecasts

• FY15 earnings reduced by 21% mainly due to lower land sales and timing of progress recognition.
• Furthermore, management target to reach RM500m net profit looks challenging.

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;

Valuation

• Given the sector headwinds UEMS faces currently, we maintain our HOLD call.
• TP is also adjusted from RM1.58 to RM0.97 after raising discount to RNAV from 60% to 70% due to concentration in Johor.

Source: Hong Leong Investment Bank Research - 18 Aug 2015