Results

• Below Expectations: 1H17 core PATAMI achieved RM85.3m, accounting for 38.3% and 37.2% of HLIB and consensus full year estimates, respectively.

Deviations

• Mainly due to higher-than-expected finance cost.

Dividends

• None.

Highlights

• QoQ: Revenue grew by 65.7% largely due to the sale of Alderbridge land amounting to CAD113m (RM371m) offset by lower revenue from property development. Core PATAMI dropped by 60.7% in tandem with lower property development revenue and gain from revision of estimated costs for completed projects in the previous quarter. Lower profit from JV and associate also contributed to the cause.
• YoY: 2Q17 revenue increased by 66.9% due to the sale of Alderbridge land and inventory monetisation initiatives. However, core PATAMI was down (-55.9%) after stripping off the gain on sale of Alderbrige land (RM70.5m), offset by the increase contribution from property development.
• YTD: Core PATAMI grew by 48.2% contributed by higher revenue (+80.9%) from property development and land sales as well as gain from cost revision of completed projects.
• In 2Q17, UEMS achieved new sales of RM222.3m (versus RM197.9m in 2Q16), bringing YTD sales at RM391.7m, on course to meet FY17 sales target of RM1.2bn. Whereas unbilled sales stands at RM4.7bn representing a cover ratio of 2.5x on FY16 revenue.
• The sales are mainly driven by improved take-up rate in central region such as Residensi 22, Mont?Kiara and Arcoris, Estuari, Puteri Harbour, followed by southern region projects such as Teega and Almas, Puteri Harbour as well as Conservatory and Aurora from international sales.
• Management shares that the sales of the recent launch Mayfair in Melbourne (GDV: RM1.1bn) will likely pick up with aggressive marketing plan to be rolled out in stages at different countries.
• Moving forward, management will focus on rebalancing its port folio to manage the gearing at 0.6x level through active capital management, disposal of non-core assets and monetisation of its inventory via attractive sales campaign.

Forecasts

• We impute higher finance cost and perform housekeeping on our model, resulting in lower FY17, 18 and 19?s core profit by 14.2%, 3.4% and 3.8% respectively.

Rating

HOLD ↔; TP: RM1.18 ↔

• Despite trading at a steep discount to its RNAV, we see lack of near term catalyst given the subdued sentiment for property outlook in Johor.

Valuation

• Maintain HOLD call with unchanged TP of RM1.18 (based on unchanged 60% discount to RNAV of RM2.94).

Source: Hong Leong Investment Bank Research - 25 Aug 2017