UEMS reported 3QFY19 core PATMI of RM27.1m (-60.5% QoQ, +5.6% YoY), which brings the 9MFY19 sum to RM120.3m (+136.2% YoY). Note that we expect UEMS to recognise a lumpy sum of c.RM90m from the settlement of the Australian projects in 4QFY19. 9MFY19 sales of RM720m were achieved while unbilled sales stood at RM2.4bn (1.2x cover ratio). We recalibrate our earnings forecasts upwards by 17.3%/1.4%/0.8% as we had previously underestimated the earnings contributions from the Australian projects alongside marginally better local contributions. Maintain HOLD with a higher TP of RM0.75 (from RM0.73) based on a 70% discount to estimated RNAV of RM2.50 after imputing the changes to our forecast.

Above expectations. UEMS reported 3QFY19 core PATMI of RM27.1m (-60.5% QoQ, +5.6% YoY), which brings the 9MFY19 sum to RM120.3m (+136.2% YoY), forming 61.8% and 48.9% of our and consensus full year forecasts, respectively. We deem this above our expectation as we had underestimated the contributions from both the local and foreign project. Note that we expect UEMS to recognise a lumpy sum of c.RM90m from the settlement of the Australian projects in 4QFY19. 9MFY19 core PATMI sum has been arrived after excluding RM37.3m of impairment of interests in a JV, RM18.8m net deferred tax, RM10.3m land sale gain and RM14.2m of forex loss. No dividends were declared.

QoQ. Core earnings decreased -60.5% to RM27.1m largely due to a larger settlement of international projects (i.e. Conservatory and Aurora in Australia) in the immediate preceding quarter.

YoY/YTD. Core earnings improved 5.6%/136.%, respectively. The improvement YoY was due to a higher margin product mix and improved project development savings. The increase YTD can be attributed to higher settlement of international projects.

New sales of RM188m was achieved in 3Q19, bringing 9M19 sales to RM720m which represents 60% of UEMS’ full year sales target. Management maintains the FY19 sales target of RM1.2bn as bulk of the planned GDV launches will take place in 4Q (c.RM890m). Unbilled sales stood at RM2.4bn, representing a cover ratio of 1.2x cover ratio.

Australian projects. Moving into 4Q19, we estimate c.RM90m worth earnings to be recognised from the Australian projects (i.e. Aurora and Conservatory). With regards to Mayfair, the group has divested the site and is expected to recognise a net disposal gain of AUD19.1m by 4Q19.

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. We recalibrate our earnings forecasts upwards by 17.3%/1.4%/0.8% as we had previously underestimated the earnings contributions from the Australian projects alongside marginally better local contributions. Maintain HOLD with a higher TP of RM0.75 (from RM0.73) based on a 70% discount to estimated RNAV of RM2.50 after imputing the changes to our forecast. We see a 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 - 3 Dec 2019