Period  4Q14/FY14

Actual vs. Expectations  FY14 core net earnings of RM480m met consensus’ expectation but came below ours, at 95% and 90% of forecasts, respectively. We had assumed slightly more aggressive project margin assumptions.

 Sales for the period of RM2.4b was a positive surprise as it exceeded both management’s and our target of RM2.0b. 4Q14 came in strong, making up 74% of full year sales, thanks to the rapid take-up rate for their Aurora@Melbourne which hit 89%. FY14 geographical sales breakdown comprises of Australia (61%), Central (28%) and Southern (11%) region.

Dividends  Proposed first and final dividend of 3.0 sen (-25% YoY), which yields 2.2% which exceeded our FY14 NDPS expectations of 2.5 sen but missed market’s 3.6 sen estimate.

Key Results Highlights  QoQ, core earnings rose by 281% as the quarter recognized c.RM240m lumpy land sale gains (PATAMI) arising from the KLK and Motorsports City deal. If we strip off the lumpy land sales, core earnings actually fell by 55% to RM33m on significantly weaker property billings (-47%).

 YoY, FY14 core earnings was up by 5% YoY largely due to the above reasons and improved development earnings. Both FY13 and FY14 recognized lumpy land sales and if we were to exclude this from both years, FY14 development-driven revenue and earnings rose by 10% and 5%, respectively. Note that EBIT margins weakened by 4.3ppt to 19.8% given that the land sale in FY14 carries a thinner margin than the ones sold in FY13 (e.g. Puteri Harbour).

Outlook  UEMS will reveal their FY15 KPIs during their briefing on 13-Mar. We will also be formally introduced to the new CEO, Anwar Syahrin, who joined the company back in Jul- 14. We gather that indicative FY15 sales target could be closer to RM2.0b, which is inline with our current estimate.

Change to Forecasts  Minimal changes (+2%) to FY15E core earnings post house-keeping. Although sales beat our estimates, it was mainly due to Aurora, whose recognition will only be on completion i.e. FY17-18E. We may review our FY15-16E numbers pending the analysts’ briefing on 13-Mar. Unrecognized revenue of RM3.99b is at a record high and provides 1.5 years visibility.

Rating Maintain MARKET PERFORM

Valuation  At this juncture, we reckon that most of the negatives have been priced-in as: (i) -2% YTD share price return vs. the KLPRP’s +4%, (ii) the stock is trading at trough valuations while it is trading below its FY15E BV/sh of RM1.46 or closer to its NTA/share of RM1.32 when it traditionally traded at premium PBV/PNTA. However, investors will be looking for fresh catalysts or some reprieve from the challenging Johor property market (e.g. RTS, HSR, cessation of large land reclamations for property development, policies to manage influx of foreign developers). Maintain TP of RM1.60 based on 65% discount to our FD RNAV of RM4.56. Our applied discount is closer to its historical peak levels (68%) and well below our sector average of 44%.

Risks to Our Call  Unable to meet its sales target or exceeding sales target. Impact from Singapore’s property policies. Sector risks, including further negative policies. Upside risks includes new fresh catalysts (e.g. infrastructure/connectivity plays in Johor) and improvements in property demand trends. 

Source: Kenanga