Results

• Below Expectation: 1HFY16 PATAMI achieved RM57.6m, accounting for 26.2% and 24% of our and consensus full year estimates respectively.

Deviations

• Mainly due to slower-than-expected progress billing from property development.

Highlights

• YoY: 2QFY16 revenue increased by 45% due to contribution from disposal of 25.4 acres industrial land in SiLC (RM83 psf) and higher work progress from Aurora Melbourne Central, Residensi 22 and Teega. However, PATAMI dropped by 35% due to additional rebates and discount given coupled with lower collection from contractors.

• QoQ: Revenue surged by 109% and PATAMI rebounded from RM3m to RM54.6m due to higher progress billing from Aurora Melbourne and better development margin.

• In 2QFY16, UEMS achieved new sales of RM198m (versus RM229m in 1QFY16), bringing 1HFY16 sales to RM427m, only accounting for 36% of full year sales target of RM1.2bn. 1HFY16 sales was driven mainly by International sales, Conservatory in Melbourne (RM205m). Management has further reduced its full year sales target from RM1.2bn to RM1bn.

• Year to date, UEMS has launched three projects namely Denai Nusantara , Melia Residence Phase1-3 and Camellia in Serena Heights for a total GDV of RM522.6m, with remaining RM700m (landed in Serene Heights, Bukit Indah and SILC) to be launched in 2H16. St Kilda projects in Melbourne (GDV: RM671m) are targeted for launching in 1Q17. In addition, UEMS has acqui red remaining 38% stake in Solaris 3 projects (expected to launch in FY17) in Aug 16, which will increase the NPV of project from RM70m to RM113m in our RNAV estimation.

Forecasts

• FY16 and FY17 earnings forecasts are reduced by 22% and 16% respectively after we factor in lower sales target (from RM1.2bn to RM1bn) and slower progress billing.

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

Despite lower sales target and weaker results, we maintain our HOLD call with TP adjusted upwards from RM0.91 to RM1.06 (with discount to RNAV reducing from 70% to 65%) as we expect better sentiment towards the property sector in anticipation of more positive newsflow from upcoming budget.

Source: Hong Leong Investment Bank Research - 1 Sep 2016