INVESTMENT HIGHLIGHTS

• 9MFY18 earnings below expectations

• Expect stronger 4Q

• 9MFY18 new sales at RM900.5m

• Earnings forecast reduced

• Maintain BUY with a revised Target Price of RM0.86

9MFY18 earnings below expectations. UEM Sunrise Berhad (UEMS) 9MFY18 core net income of RM56.1m came in below expectations, meeting only 28% and 21% of our and consensus full year estimates respectively. The negative deviation could be attributed to the slowerthan-expected earnings recognition from local and Melbourne projects.

Expect stronger 4Q. UEMS recorded core net income of RM16.4m in 3QFY18, declining by 88.7%yoy. That brought cumulative 9MFY18 core net income to RM56.1m (-25.2%yoy). Note that we have excluded gain from land sales in our core net income calculations. Earnings in 9MFY18 were lower as development cycles of local projects (Solaris Parq, Serimbun and Kiara Kasih) are still at the early stages. Meanwhile, unbilled sales stood at RM4.7b in 3QFY18 whereby 74% of the unbilled sales were contributed by project in Australia. We expect 4QFY18 earnings to be stronger as income is expected to be boosted by from Melbourne projects in 4QFY18 upon completion of the projects.

9MFY18 new sales at RM900.5m. UEMS registered new property sales of RM236.7m in 3QFY18, flattish against new property sales of RM229.5m in 2QFY18. That brought total new sales to RM900.5m in 9MFY18, higher than new sales of RM671.1m in 9MFY17. New sales in 9MFY18 are within expectations, making up 75% of management sales target of RM1.2b. Meanwhile, UEMS launched Residensi Astrea (GDV: RM326.7m) on 17th October 2018 while booking rate for the project is encouraging at 51%. Looking ahead, UEMS plans to launch project with total GDV of RM172m towards end of FY18.

Maintain BUY with a revised Target Price of RM0.86. We cut our earnings forecast for FY18/19 by 48.7%/14% to account for the lowerthan-expected earnings recognition from local and Melbourne projects. Our TP is revised to RM0.86 from RM1.18 as we widened RNAV discount to 60% from 48% in view of the weak earnings visibility in near term. Nevertheless, we are maintaining our BUY call on UEMS due to its attractive valuation of trading at 48% discount to latest NTA per share of RM1.42. We also like the company’s strategy of offering products in midmarket segments in Central region of Malaysia in addition to its premium products in Mont’ Kiara.

Source: MIDF Research - 29 Nov 2018