9MFY19 CNP of RM149.1m fell 42% YoY due to absence of land sales which lifted the previous year’s bottom-line. While 9MFY19 CNP only accounted for 43%/61% of our/consensus expectations, we have assumed lumpy recognition of land sales in 4QFY19. No dividends were declared. Hence, we maintain our earnings estimates. Still OUTPERFORM with a slightly higher TP of RM0.850 (from RM0.835) as we switch to the adjusted P/BV valuation methodology.

Broadly in-line. 9MFY19 CNP of RM149.1m accounted for 43% of our full-year forecast and 61% of consensus estimate. Nonetheless, we deem this as broadly in-line as we have factored in lumpy land sales in our estimates (RM300m in FY19). No dividends were declared, as expected.

Result highlights. The YTD performance was anchored by its international projects (in particular Aurora Melbourne Central and Conservatory), which accounted for 69% of property development revenue. YoY, performance was distorted by land sales which contributed RM211m in 9MFY18. QoQ, 3QFY19 CNP dipped as the bulk of the Aurora Melbourne Central project was booked in in 2QFY19.

Launched RM1b of properties to-date. The Group has raked in property sales of RM720m in the first nine months this year, taking unbilled property sales of RM2.4b. For the full-year, UEMS is planning to launch RM1.2b worth of properties.

No changes to earnings as we have factored in an earnings lift from land sales (of RM300m) in FY19. Earnings visibility will be underpinned by the existing unbilled sales of RM2.4b.

Maintain OUTPERFORM with a revised TP of RM0.850 (from RM0.835 previously). Using the adjusted P/BV valuation methodology to ascertain the trough valuations of property stocks amid the prevailing market down-cycle, our TP is derived from a P/BV of 0.56x (at minus 0.5SD of its 3-year historical band) on an adjusted BV/share of RM1.52 (after imputing a 40% discount to its latest available inventory level of completed properties).

Risks to our call include: (i) weaker-than-expected property sales, (ii) margin fluctuations, (iii) changes in real estate policies, and (iv) changes in lending environment.

Source: Kenanga Research - 27 Nov 2019