INVESTMENT HIGHLIGHTS

• 9MFY16 earnings within consensus expectation

• Management maintain sales target of RM1.0b

• Earnings estimate increased after assuming higher land sale

• No provision on the income tax case in 3QFY16

• Maintain NEUTRAL with TP of RM1.03

9MFY16 earnings within expectation: UEM Sunrise Berhad (UEMS) 9MFY16’s Core Net Income of RM123.2m was within consensus expectation as it makes up 65% of consensus full year FY16 forecast. However, it is better than our estimate due to higher than expected land sales secured. Note that UEMS disposed 3 acres of land in Afiat Healthpark to Columbia Asia Hospital in 3QFY16 for estimated amount of RM60m. As expected, no dividend was announced in the 3QFY16.

Management maintain sales target of RM1.0b. 9MFY16 sales of RM707m make up 71% of the target and we believe that UEMS should achieve its full year sales target of RM1.0b. The biggest sales contributor in the 9MFY16 is Conservatory in Melbourne (RM222m or 31% contribution). Unrecognized revenue of RM4.1b represents 2.7 years of earnings visibility.

No provision on the income tax case in 3QFY16. On the recent Federal Court decision on the tax appeal case by Bandar Nusajaya Development Sdn Bhd (“BND”) in which the Federal Court instructed BND to follow the appeal route, UEMS mentioned that it has consulted its legal adviser who believe that UEMS has a strong arguable case. As for the appeal, UEMS has filed a notice of appeal at the Special Commissioners of Income Tax but the notice was rejected. UEMS legal adviser believes that the Company has a good case to contest the rejection and hence UEMS is now pursuing the matter. Hence, UEMS made no provision related to this case in 3QFY16.

Maintain NEUTRAL with Target Price of RM1.03. We have increased our earnings estimate for both FY16 and FY17 after assuming higher land sale. Valuation methodology is unchanged based on 50% discount to RNAV. We maintain our NEUTRAL call as the share price is already at significant discount of 24% to its NTA of RM1.35 suggesting minimal downside

Source: MIDF Research - 1 Dec 2016