We attended UEMS’ briefing, which formally introduced its CEO/MD, En. Anwar Syahrin Abdul Ajib and we were impressed with his working knowledge and grasp of UEMS and the property market considering that he only commenced office in late 3Q14. The briefing was well attended by some 20 sell-side analysts. While 2015 KPIs were not published, En. Anwar shared with us their main targets, which are more bullish than our current estimates. He acknowledged that it will be a tough year which they plan to overcome by “sticking to the plan”. However, we came away largely NEUTRAL as we have opted to keep a more conservative estimate against UEMS’ 2015 KPIs due to the challenging local market conditions and concerns on whether its launches would be rolled-out in a timely manner. Hence, our earnings estimates are kept unchanged. Reiterate MARKET PERFORM with unchanged TP of RM1.47 based on 65.0% discount to FD RNAV of RM4.26.

2015 KPIs. While 2015 KPIs were not published, En. Anwar shared with us their main targets such as: (i) sales target of RM2.0b-RM2.4b, (ii) flattish revenue growth, and (iii) earnings growth of 4.0%-15.0% or RM500.0m-RM550.0m. Save for the base sales target, UEMS’ 2015 KPIs are more ambitious than ours.

2015 sales will be largely driven by Australia. Its new project, The Conservatory@Melbourne, and remaining phases of Aurora are expected to make up close to half of their stretched sales target. They target RM0.7b worth of sales from Johor as they will be launching high-end landed residentials at Estuari@Puteri Harbour and mid-end landed residentials at Signature@Gerbang Nusajaya. SiLC Ph3 should add another RM0.3b if it is launched this year. In Klang Valley, Serene Heights at Bangi, Sefina@MK and Artisan Hills will also be launched. However, we note that the affordable housing projects only make up 14.0% of their stretched sales target. (Refer overleaf).

So, how realistic are UEMS sales target? We prefer to stick to our FY15E sales target of RM2.0b, which is also inline with UEMS’ base target. While we are confident of their Australian offerings, we are still concerned about local take-up rates given the more challenging lending environment while Johor continues to be a concern among buyers. We will look to revise up our sales targets if the group can demonstrate stronger local project take-ups and if launches are timely. As it is, some of these projects (e.g. Serene Heights, Estuari) were actually meant to be launched in 2014 and have been pushed to 2015, but it is understandable given that En. Anwar only took on the reigns sometime late 3Q14. For now, we also opt to keep our earnings estimates unchanged after our unrecognized revenue analysis where we noted that a large chunk of it comes from Australia, i.e. recognition only in 2017/18 (refer overleaf).

Still on a lookout for landbanking opportunities. Clearly, the group is trying to increase non-Johor-based landbanks in their books. The preference is still JV structures similar to that of their KLK-Gerbang Nusajaya land swap deal, as these deals are less taxing on their balance sheet, while enabling synergies between entities. On their own, the group will be looking to add more landbanks in Central and Northern locations and will target township size landbanks, niche parcels for high-rise developments in KL and internationally (targeting Melbourne and Sydney, Australia). As a result, the group is unlikely to consider doing share buy-backs, albeit the very low share price, as they believe cash should be deployed for landbanking purposes.

Reiterate MARKET PERFORM with unchanged TP of RM1.47 based on 65.0% discount to our FD RNAV of RM4.26. Our applied discount is steeper than the average sector’s RNAV discount of 50.0% due to their heavy Johor exposure. Downside risk is limited as the stock has been de-rated to below its book value as it is trading at FY15E PBV of 0.9x vs. its historical average of 1.9x. However, the stock lacks near-term catalysts, while their 2015 KPIs will be a tough target to meet. We reckon the stock will re-rate once the situation or newsflow in Johor becomes more positive (e.g. revival of O&G plays, slower influx of Chinese developers). 

Source: Kenanga Research - 5 May 2015