1H17 CNP of RM156m is deemed broadly within due to recognition of the lumpy Alderbridge disposal gain and the 1H17 sales of RM392m is also broadly in line with management’s and our full-year sales targets of RM1.20b and 1.22b, respectively, as major new launches only kicked- off in mid-2017. No dividends, as expected. Maintain earnings estimates. Upgrade to OUTPERFORM with an unchanged TP of RM1.33 given the recent price retracement and stable company outlook.

Boosted by disposal gains. 1H17 CNP of RM156m is deemed broadly within expectations even though it made up 68% of street’s and 70% of our full-year estimates. This is largely due to gains on disposal of assets (largely Alderbridge, Canada land sale) with a combined value of RM389m which has been imputed in our estimates. Sales secured over 1H17 amounted to RM392m and made-up 33% and 32% of management’s and our FY17E sales targets of RM1.20b and RM1.22b, respectively. This is also deemed as broadly in-line as the timing of their major launch, Mayfair@Melbourne (GDV: RM1.1b) and their Signature Selection campaigns were only just recently launched. No dividends, as expected.

Australia billings in full swing. QoQ, 2Q17 CNP rose by 36% to RM90m largely due to the recognition of the above-said disposals. Stripping-out the gains on disposal from Alderbridge, CNP actually dipped by 72% to RM18m on significant margin compressions arising from LAD provisioning (RM15m), recognition of low margin projects and higher marketing expenses from their new launches. YoY, 1H17 CNP was up by 169% on similar reasons while also enjoying stronger billings as its Australia projects are in more significant construction stages. Net gearing creeped up to 0.47x.

Management remains confident of its FY17E sales target of RM1.20b. The group has recently launched its third home ownership campaign (“Signature Selection”) which features EASY Own Plan, which includes easy entry options (low down payments), rent-to-own at locked-in prices, easy financing and other privileges for selected projects. To date, the group has launched RM1.2b worth of new projects and they expect to launch another RM513m GDV in 2H17 (Solaris Parq Tower A, Serimbun@Bukit Indah) while the group still has c. RM2b worth of unsold products (WIP/inventories at market value). We can also expect more divestments to take place to manage its balance sheet stress while providing funding opportunities for potential land banking outside Johor. Management mentioned that resumption of dividends will only be determined in 4Q17; until then, we have assumed no dividends for now.

No changes to earnings. Unrecognized revenue of RM3.3b provides 1.5 years’ visibility.

No changes to TP of RM1.33 based on 69% discount to its FD RNAV of RM4.30. Our applied discount is based at -0.5SD to its historical mean after considering their big exposure in Johor. It sales outlook has stabilized somewhat thanks to more overseas and Klang Valley drivers. Although near-term catalysts are lacking, we believe the company’s outlook is more stable at the moment and given the retracement in share price, we believe valuations are compelling at these levels. Upgrade to OUTPERFORM (from MARKET PERFORM).

Risks include: (i) weaker-than-expected property sales, (ii) margin compressions, (iii) negative changes in real estate policies, and (iv) negative changes in lending environments.

*Note that UEMS is the only developer under our coverage that practices progressive recognition for projects in Australia instead of the norm of recognition on completion. However, do note that collection of billings from Australia projects is based on completion by other developers under our coverage. *CNP excludes unrealized FOREX losses/gains, gain/loss on disposal of non-property assets, FV adjustments

Source: Kenanga Research - 24 Aug 2017