UEMS reported 1HFY19 core PATMI of RM107.8m (+326.9% YoY), forming 47% and 41% of our and consensus full year forecasts, respectively. New sales of RM317m was achieved in 2Q19, bringing 1H19 sales to RM532m which represents 44% of UEMS’ full year sales target. Unbilled sales stood at RM2.6bn, representing a cover ratio of 1.3x. With regards to GDV launches, RM249m was achieved in 1H19 and we note that bulk of the planned GDV launches will take place in 4Q (c.RM800m). Maintain HOLD with a lower TP of RM0.74 (from RM0.79) based on a 70% discount to estimated RNAV of RM2.47 after imputing slower launches in the southern region.

Within expectations. UEMS reported 2QFY19 core PATMI of RM77.7m (+158.1% QoQ, turned profitable YoY), which brings the 1HFY19 sum to RM107.8m (+326.9% YoY), forming 47% and 41% of our and consensus full year forecasts, respectively. Note that the 1HFY19 core PATMI sum has been arrived after excluding RM37.3m of impairment of interests in a JV. No dividends were declared.

QoQ/YTD. Core earnings improved 77%/327% to RM77.7m/RM107.8m largely due to a larger settlement of international projects (i.e. Conservatory and Aurora in Australia).

YoY. Core earnings turned profitable (from -RM2.3m) from the same reasons mentioned above. Note that 2Q18 LATMI was largely due to higher marketing expenses from inventory monetisation campaign and projects in Australia.

New sales of RM317m was achieved in 2Q19, bringing 1H19 sales to RM532m which represents 44% of UEMS’ full year sales target. Unbilled sales stood at RM2.6bn, representing a cover ratio of 1.3x cover ratio. With regards to GDV launches, RM249m was achieved in 1H19 and we note that bulk of the planned GDV launches will take place in 4Q (c.RM800m).

Australian projects. Moving into 2H19, we estimate c.RM100m worth earnings to be recognised from the Australian projects (i.e. Aurora and Conservatory). With regards to Mayfair, the group plans to divest the site in the near-term. We are positive on the initiative as the group will be able to realise the immediate potential value of the land. Recall that Mayfair was initially planned for an ultra-luxurious high rise development with an estimated GDV of RM1.1bn.

The new township in Kepong. Despite limited information available, we note that bulk of the 4Q launches will be located within the Kepong land. The land is estimated to generate RM15bn worth of GDV, providing visibility to earnings over the next 25 to 30 years.

Outlook. For FY19, UEMS is targeting for a flat sales target of RM1.2bn, while GDV launches are targeted at RM1.2bn (+33% YoY). 33% of GDV launches are located in the Southern Region while the remaining 66% in the Central Region; bulk of the launches are priced between RM500k to RM1m and command a slightly lower margin vis-à-vis historical product mix.

Forecast. Unchanged as the results were inline.

Maintain HOLD with a lower TP of RM0.74 (from RM0.79) based on a 70% discount to estimated RNAV of RM2.47 after imputing slower launches in the southern region as we see lack of near-term catalyst given the subdued sentiment for property outlook in Johor. Potential bumpy earnings will be seen moving forward given the adoption of MFRS15 in the recognition of their overseas projects.

Source: Hong Leong Investment Bank Research - 29 Aug 2019