INVESTMENT HIGHLIGHTS

• 9MFY17 earnings boosted by land sales

• 9MFY17 new property sales at RM671.1m

• Earnings estimate raised

• Upgrade to BUY (from Neutral) with unchanged Target Price of RM1.24

9MFY17 earnings boosted by land sales. UEM Sunrise Berhad (UEMS) recorded core net income of RM89.1m (+44%yoy) for 3QFY17, bringing cumulative earnings in 9MFY17 to RM273.3m (+122%yoy). The cumulative earnings beat expectations after making up 114% and 120% of our and consensus full year estimates. Its 3QFY17 earnings were boosted by land sales in Johor with total consideration of RM66.5m. Besides, the higher cumulative earnings were also driven by higher earnings contribution from local (central region and southern region) and oversea projects. Note that our core net income calculation mainly excludes RM27m of provision for liquidated ascertained damages.

9MFY17 new property sales at RM671.1m. UEMS recorded new property sales of RM279m in 3QFY17, bringing 9MFY17 new sales to RM671.1m. The new sales in 9MFY17 make up 56% of management sales target of RM1.2b. Nevertheless, management is confident of hitting its RM1.2b target as sales from Solaris Parq in Dutamas and Mayfair in Melbourne should support sales in 4QFY17. Note that UEMS launched projects with GDV of RM1.9b in 9MFY17 where Solaris Parq and Mayfair made up 96% of the launched GDV. Meanwhile, unbilled sales depleted slightly from RM3.3b in 2QFY17 to RM2.9b in 3QFY17, providing 1.6 year of earnings visibility.

Earnings estimate raised. We raised our FY17/18 earnings forecasts by 35%/17% to account for the gain from land sales and higher contribution from property projects.

Upgrade to BUY with unchanged Target Price of RM1.24. Our TP is based on unchanged 40% discount to RNAV. The recent weakness in share price makes UEMS more attractive as it is now trading at 25% discount to NTA. Property sales outlook for UEMS is also stable driven by its local and oversea projects. Besides, the continuous asset monetisation exercise will also allow UEMS to gradually shift its focus from southern region to central region of Malaysia.

Source: MIDF Research - 21 Nov 2017