INVESTMENT HIGHLIGHTS

• FY18 earnings above our expectation

• Strong earnings in 4QFY18

• FY18 new sales at RM1.43b

• Earnings forecast revised upwards

• Revised Target Price higher to RM0.91 but downgrade call to Neutral due to recent price gains

FY18 earnings above our expectation. UEM Sunrise Berhad (UEMS) FY18 core net income of RM124.6m came in above ours but below streets’ expectation, meeting 120% of our full year estimates. The positive deviation could be attributed to the higher-than-expected earnings recognition from Melbourne projects.

Strong earnings in 4QFY18. UEMS recorded stronger sequential earnings in 4QFY18 which is within our expectation. 4QFY18 core net income climbed 318%qoq to RM68.6m as earnings were boosted by projects in Australia. Cumulatively, FY18 core net income came in at RM124.6m against core net loss of RM4.2m in FY17. Note that UEMS restated its FY17 figures lower following the adoption of MFRS 15 which has resulted in deferment on the recognition of land sales and unwinding the recognition of Australia projects. Meanwhile, unbilled sales stood declined marginally to RM4.4b in FY18 from RM4.7b in 3QFY18.

FY18 new sales at RM1.43b. UEMS chalked up new property sales of RM529.5m in 4QFY18, higher than new sales of RM236.7m in 3QFY18. That brought total new sales to RM1.43b in FY18 (FY17 new sales: RM1.49b) which is ahead of management sales target of RM1.2b. Looking forward, management set its new sales target at RM1.2b for FY19 on the back of planned launches worth total GDV of RM1.2b.

Downgrade to Neutral with a revised Target Price of RM0.91.

We increase our FY19 earnings forecast by 3.4% to factor in the higher than expected new sales achieved in FY18. We also introduce our earnings forecast for FY20. Our TP is revised to RM0.91 from RM0.84 as we narrowed RNAV discount to 58% from 61% in view of the stable new sales prospect. Nevertheless, we are downgrading our call on UEMS to Neutral from Buy due to limited upside. Note that share price of UEMS gained 26% year-to-date.

Source: MIDF Research - 27 Feb 2019