Results

• Below Expectations: 9M17 core PATAMI achieved RM131.7m, accounting for 69.0% and 58.1% of HLIB and consensus full year estimates, respectively.

Deviations

• Mismatch of progress billing recognition and higher tax.

Dividends

• None.

Highlights

• QoQ: Revenue declined by 20.3% largely due to high base effect from the sale of Alderbridge land in 2Q, offset by higher contribution from property development. Core PATAMI grew by 92.9% in tandem with higher progressive billings from both international and local projects.
• YoY: 3Q17 revenue increased by 69.9% with higher progressive billings from both international and local projects as well as inventory monetisation initiatives. Core PATAMI increased by 27.7% after stripping off the gain on land sales.
• YTD: Core PATAMI grew by 40.2% contributed by higher revenue (+77.1%) from property development and strategic land sales as well as gain from cost revision of completed projects.
• In 3Q17, UEMS achieved new sales of RM279.4m (flat yoy), bringing YTD sales at RM671.1m. Unbilled sales stands at RM4.5bn representing a cover ratio of 2.5x on FY16 revenue.
• Management is confident of achieving full year FY17 sales target of RM1.2bn with commendable bookings for Solaris Parq, Dahlia @ Serene Height Bangi and Mayfair in Melbourne.
• UEMS has been moving towards providing more affordable homes since the past two years following the shift of demand by the market. Hence, the announcement on the freeze of luxury properties would have limited impact given the pipeline launches are in the mid-market with the exception of plot MK27 in which development order has already been secured.
• Moving forward, management will focus on rebalancing its portfolio to focus more on central region and any potential landbanking exercise will be funded by internal generated funds.

Forecasts

• We lower FY17, 18 and 19 core profit by 9.3%, 9.4% and 6.7% respectively by imputing higher tax rate assumption.

Rating

HOLD ↔; TP: RM1.18 ↔

• Despite trading at a steep discount to its RNAV and significant upside to our target price, 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 - 21 Nov 2017