UEMS’  3Q14  results  came  in  below  expectations.  Maintain  TRADING BUY  with a lower  TP of MYR2.16  from MYR2.52  (20% upside).  Although 9M  new  sales  only  amounted  to  MYR641m,  the  Aurora  project  in Melbourne will likely  be able to help the company  hit its MYR2bn sales target  for  FY14.  Also,  management  expects  some  land  sales  to  be concluded in December. We hence maintain our earnings forecasts.

Below  expectations.  UEM Sunrise’s (UEMS)  3Q14 results  missed our and market expectations again.  The YoY  decline in earnings was mainly attributed  to  the  lack  of  developed  land  sales  in  9M14.  Finance  cost during  the  quarter  was  also  higher  due  to  the  uncapitalised  sukukinterest.

3Q sales still sluggish.  New  property sales achieved MYR202m in 3Q, down  from  MYR316m  in  2Q,  mainly  contributed  by  Residensi  22  and Arcoris. Although  9M total was  only MYR641m, we believe the company will  be  able  to  hit  its  MYR2bn  sales  target.  The  Aurora  Melbourne Central  project  (GDV:  MYR2.2bn)  was  very  well  received  with  95% booking  out  of  the  941  units  launched.  This  should  rake  in  close  to MYR1.5bn  sales  in  4Q14-1Q15,  as  the  signing  of  sales  and  purchase agreements  are  now  taking  place.  The  remaining  portion  that  has  not been  launched,  comprising  some  retail  and  a  block  of serrviced apartment,  is  planned  for  en  bloc  sale.  Management  is  currently negotiating with interested parties. 

Forecasts.  We maintain our earnings forecasts. We think numbers will likely  come  in  stronger  in  4Q,  potentially  making  up  half  of  full-year earnings,  as  management  expects  the  land  sales  to  KL  Kepong  (KLK MK,  NEUTRAL,  TP:MYR20.70),  and  Fastrack  Iskandar  SB  (for Motorsport City land)  to  be completed in December, and hence net gain of about  MYR250m can be recognised in 4Q.  Meanwhile, unbilled sales stayed resilient at MYR4bn in 3Q14 (vs MYR4.22bn in 2Q14).

Maintain TRADING BUY. As we expect the operating environment to be more challenging next year with the kicking in of GST in 2Q15, we lower our  TP  to  MYR2.16  (from  MYR2.52)  with  a  larger  40%  (from  30%) discount  to  RNAV.  However,  we  will  not  discount  the  possibilities  thatover  the  medium  term,  the  State  Government  may  look  to  loosen  up some  cooling  measures  to  help  revive  the  sentiment  on  the  Iskandar housing market. We thus retain our TRADING BUY call.

Source: RHB