UEMS’ 2Q14 results came in below expectations. 1H sales achieved MYR439m, but management cut its FY14 sales target to MYR2bn given the slow sales momentum YTD. As such, we lower our FY14-15F earnings forecasts by 7-10% and reduce our FV to MYR2.52 (fromMYR2.73). As we expect the announcement of the High Speed Rail project to be the stock’s near-term catalyst, we retain our TRADING BUY call on UEMS. 

Below expectations. UEM Sunrise’s (UEMS) 2Q14 results missed our and market expectations again, making up only 23% and 25% of our and consensus estimates respectively. Apart from the lack of developed land sales, the higher progress billings from the property development division was offset by the cost revision on certain projects arising from the potential goods and services tax (GST) impact. Management stated that this is not a recurring item. 

2Q sales reach MYR316m. 2Q14 property sales achieved MYR316m vsMYR123m in 1Q14. Residensi 22 was the key contributor (MYR205.5m), followed by Almas in Puteri Harbour (MYR60.2m), which saw a take-up rate of only 20%. In view of the challenging market conditions and slowsales momentum, management slashed its FY14 sales target by 37.5%to MYR2.0bn (from MYR3.2bn). Mid-end homes that suit the market conditions are prioritised, with Serene Heights in Bangi and new phases in Nusa Bayu and Nusa Idaman set to be launched in 2H. The only higher-end product that UEMS plans to roll out is the superlink homes inD’Estuary, Nusajaya. Meanwhile, it plans to launch its Melbourne project in La Trobe Street (AUD730m GDV) in October given the encouraging current market demand there. 

Forecasts. In view of the weak 1H14 results and slower sales, we lowerour FY14-15F earnings forecasts by about 7-10%. The gain on land sales to Kuala Lumpur Kepong (KLK MK, NEUTRAL, FV: MYR25.20)and Fastrack Iskandar SB (for Motorsport City land) – which will be recognised in 2H – should make up for the earnings shortfall. Meanwhile, unbilled sales remained steady at MYR4.22bn vs MYR4.4bn in 1Q14. 

Maintain TRADING BUY. Given management’s lower earnings guidance, we cut our FV to MYR2.52 (from MYR2.73) based on a larger 30% discount (from 25%) to RNAV. As we expect the announcement ofthe High Speed Rail project by year-end to be the stock’s catalyst, we retain our TRADING CALL call.

Source: RHB