INVESTMENT HIGHLIGHTS

• 1QFY18 earnings below expectations

• Higher sequential earnings but lower yoy

• New sales at RM434.3m

• Earnings forecast reduced

• Maintain BUY with revised Target Price of RM1.25

1QFY18 earnings below expectations. UEM Sunrise Berhad (UEMS) 1QFY18 core net income of RM27m came in below expectations, making up 11% of our and consensus full year estimates. The negative deviation could be attributed to lower-than-expected contribution from local projects and adoption of MFRS 15 (deferred revenue recognition of international projects following change in revenue recognition of international projects to upon settlement from progress completion).

Higher sequential earnings but lower yoy. UEMS 1QFY18 core net income was higher on sequential basis after registering core net income of RM27m in 1QFY18 as compared to net loss of RM49.6m in 4QFY17 as UEMS incurred higher marketing and promotional expenses in previous quarter. Note that UEMS restated its 4QFY17 earnings from RM37.7m net profit to net loss of RM49.6m due to adoption of MFRS 15 as earnings recognition from overseas projects were taken out while high marketing and promotional expenses further weighed on earnings. On yearly basis, 1QFY18 core net earnings is lower (-33.9%yoy) as earnings in 1QFY17 was boosted by completion of Teega, Arcoris and Residensi 22 while on-going projects namely Solaris Parq, Serimbun and Kiara Kasih are still at initial stage of development. Meanwhile, unbilled sales of RM4.8b in 1QFY18 provides 3.3 year of earnings visibility.

New sales at RM434.3m. UEMS recorded new property sales of RM434.3m in 1QFY18, higher than new sales of RM169.4m in 1QFY17. 39% of the new sales in 1QFY18 came from projects in Klang Valley, 37% contributed by overseas project while the remaining 24% contributed by project in Johor. New sales in 1QFY18 are slightly ahead of management sales target of RM1.2b as it makes up 36% of management sales target. Nevertheless, management remains prudent in its sales and maintains its sales target of RM1.2b. New sales in FY18 are expected to be driven by new planned launches with GDV of RM1b and sale of completed projects. Note that 73% of new planned launches in FY18 are in central region (Mont Kira and Bangi), in line with management’s strategy of focusing on Klang Valley.

Source: MIDF Research - 23 May 2018