Results

• Below Expectation: 1QFY16 PATAMI achieved merely RM3m profit versus our full year forecast of RM326m.

Deviations

• Mainly due to slower-than-expected revenue recognition from property development.

Highlights

• 1QFY16 revenue fell by 38% YoY and 58% QoQ mainly due to reduction in property sales in Southern region and slower work progress for Arcoris and Aurora Melbourne Central.

• In 1QFY16, UEMS achieved new sales of RM229.2m (versus RM390.1m in 1QFY15) mainly contributed by The Conservatory of Melbourne of RM160m (take up rate increased from 55% to 81% QoQ).

• Year to date, UEMS had launched two projects namely Denai Nusantara (high rise with GDV: RM188.5m) and Melia Residences (Phase 1-3 with GDV: RM280.1m). We understand that Phase 1 (from RM650k) and 2 (from RM700k) of Melia Residences have received overwhelming response and fully taken up within the first two days of launching.

• Despite the delay in launching of St Kilda projects in Melbourne (GDV: RM671m) from 4Q15 to 1Q16, UEM is targeting to launch RM1.2bn worth of projects with the shortfall be made up from SILC Phase 3 (GDV: RM500m) and Bukit Indah project (GDV: RM114m). As such, we conservatively reduce our sales target from RM1.5bn to RM1.2bn.

• In addition, UEMS entered into joint land development agreement with TM (entitled RM150m + 5% of GDV share) on the 1.69 acres of Bukit Mahkamah Land in Raja Chulan. No GDV detail disclosed, but with the assumption of GDV of RM1bn, we estimate the land cost at around RM2.7k psf in line with surrounding transaction of RM2k to RM3k. We estimate this project to increase RNAV by 0.7%.

Forecasts

• FY16 and FY17 earnings forecasts are reduced by 33% and 26% respectively after we factor in slower revenue recognition from property development.

Rating

HOLD

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

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

Valuation

We maintain our HOLD call with TP adjusted slightly from RM0.92 to RM0.91 (with an unchanged 70% discount of RNAV) posted earnings downgrade.

Source: Hong Leong Investment Bank Research - 30 May 2016