UEMS’ 2Q13 results came in within expectations. New property sales in 1H13 amounted to MYR1.7bn, on track to meet our MYR3bn target.  The group,  which  has  about  MYR3.2bn  worth  of  projects  in  the  pipeline,  is expected to complete more land disposal deals in 2H.  That said, as the sector’s outlook is increasingly fraught with economic and policy risks, we lower our FV to MYR2.73. Maintain Neutral. 
 
- Within  expectations.  UEMS’ 2Q13 results were  within  our  and  market expectations. The sequential decline in earnings was mainly due to lower developed  land  sales  (land  sale  to  Liberty  Bridge  was  completed  in 1Q13),  which  led  to  lower  EBIT  margin  during  the  quarter.  The  key projects  that  contributed  to  property  development  earnings  were  East Ledang and Nusa Idaman.  

- MYR1.7bn  sales  in  1H13.  New  sales  in  1H13  amounted  to  MYR1.7bn (from MYR956m in 1Q13), on track to meet our MYR3bn target for FY13. The  sales  were  largely  contributed  by  its  projects  in  Iskandar,  including new  phases  in  East  Ledang,  Nusa  Idaman  and  Nusa  Bayu.    There  are still MYR3.2bn worth of projects in  the pipeline to be launched, such as CS-1, MK22, and new phases of East Ledang, Nusa Idaman and Bayu.

- Forecasts.  We  make  no  changes  to  our  earnings  forecasts.  Unbilled sales currently  stood at  MYR4.23n,  up from  MYR3.55bn  in  1Q.  The  2H earnings outlook is still promising as UEMS is expected to complete the land  disposal  deals  with  the  Ascendas  JV  and  Southern  Marina Development  –  a  70:30  JV  company  between  Kuok  Brothers  and Khazanah, by year-end.

- Fair  value  lower  at  MYR2.73.  The  macroeconomic  environment  in  the Asia  region  is  turning  increasingly  challenging  in  addition  to  the unwinding  of  liquidity.  These  are  likely  to  have  an  impact  on  property sales  in  Iskandar,  which  has  been  experiencing  strong  foreign  buying. Just  yesterday,  Johor  Housing  and  Local  Government  Committee chairman Abdul Latiff Band indicated that the Johor state government is looking to review the policy on foreign ownership of real estate to contain the increase in the state’s property prices. Given the rising economic and policy  risks,  we  maintain  our  Neutral  rating  on  the  stock.  We  lower  our FV  to  MYR2.73  (from  MYR3.33),  based  on  a  larger  25%  (from  10% previously) discount to RNAV.

Source: RHB