Results

• Below Expectations: 3QFY15 PATAMI fell 43% YoY and 33% QoQ, bringing 9MFY15 PATAMI to RM185m or accounting for only 49% of ours and consensus’ estimates, respectively.

Deviations

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

Highlights

• QoQ: 3QFY15 revenue dropped by 25% due to lower construction progress of Quintet Phase as the project in nearing completion. Land sales were also minimal at RM8m this quarter as compare to RM44m in 3Q15. This is due to the deferred launching of SILC Phase 3 (GDV:RM350m) from 3Q15 to FY16 due to weak market sentiment.

• UEMS achieved sales of RM583m in 3Q15 (versus RM210m in 2Q15), bringing 9M15 sales to RM1.2bn, accounting for 59% of company full year target of RM2bn. 3Q15 sales were mainly contributed by Conservatory in Melbourne (sales:RM290m). Management remains confident to meet full year sales target with new sales mainly from Conservatory (circa 70% booking versus 24% take up as of Sep15), Aurora (RM326m) and sales of an office block in Imperia (RM138m).

• Overall, the company has launched about RM2bn worth of project at domestic (RM850m) and international (RM 930m). Sefina, Mont Kiara (GDV: RM307m) achieved take up rate of 54% since launched in Aug15. New sales from Serene Heights, Bangi (GDV: RM180.7m, launched in June15) and Estuari Harbour (GDV: RM631.9m, launched in Aug15) were slow with take up rate of 1% and 39% respectively. YTD unrecognised revenue stood at RM4.1bn, representing 2.4x of UEMS’ FY14 revenue.

Risks

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

Forecasts

• FY15 and FY16 earnings were reduced by 35% and 10% respectively mainly due to lower land sales and timing of progress recognition.

Rating

HOLD

• Posi tives: highly liquid proxy to property sector; large war-chest for landbank acquisitions.

Negatives

• : Concent rated in Johor; vulnerable to external slowdown;

Valuation

• Given the sector headwinds UEMS faces currently, we downgrade the stock from HOLD to SELL. TP is also adjusted from RM0.97 to RM0.94 due to reduction in earnings forecasts but with an unchanged 70% discount of RNAV to reflect risk of Johor concentration.

Source: Hong Leong Investment Bank Research - 27 Nov 2015