UEMS’ 1Q15 results were below expectations. We maintain our NEUTRAL rating and revise down our TP to MYR1.26 (9% upside), as the stock has been recently removed from the MSCI Malaysia Index. As expected, new sales were weak at only MYR390m, mainly contributed by Aurora Melbourne. We are hopeful that the upcoming launches of Sefina, SiLC 3 and Conservatory will help to push sales in 2H15.

Below expectations. UEM Sunrise’s (UEMS) 1Q15 results missed our and market expectations. The weak QoQ growth was due to the lack of land sales, as the lumpy land disposals to FASTrack Iskandar and KLK joint venture (JV) were completed last quarter. Meanwhile, EBIT margin contracted to 15% during the quarter, largely due to marketing expenses arising from the Aurora Melbourne project that was launched late last year.

1Q15 new sales were only MYR390m, vs MYR1.8bn in 4Q14 and MYR123m in 1Q14. The sales in 1Q15 were mainly from Aurora Melbourne, which contributed MYR251m, followed by Almas Puteri Harbour (MYR24m). Despite the soft market, response from the preview of Sefina (GDV: MYR311m), a high-rise residential project in Mont’ Kiara with ASP of MYR850 psf, saw an encouraging booking rate of 50%. However, we think the attrition from loan rejections will likely cut down the take-up by half. In the pipeline, UEMS also plans to roll out Serene Heights in Bangi, Artisan Hills in Johor, as well as Estuari in Puteri Harbour, new phases in East Ledang and Nusa Bayu. The launches of Southern Industrial & Logistics Clusters (SiLC 3) and the second Melbourne project, Conservatory, are scheduled in 2H15.

Forecasts. We maintain our earnings forecasts for now, as 1Q numbers are typically weaker historically. Unbilled sales declined slightly to MYR4.8bn, from MYR5.3bn in 4Q14.

Maintain NEUTRAL. The stock continues to lose its shine as it was removed from MSCI Malaysia Index on 13 May. Given the concern as well as the weak sentiment in the Iskandar property market, we cut our TP to MYR1.26 (from MYR1.42), based on a larger 60% discount to RNAV (from 55%). While downside risk should be minimal given UEMS’ NTA of MYR1.40 and P/BV of 0.83, re-rating catalysts are lacking.

SWOT Analysis

Company Profile

UEM Sunrise (previously known as UEM Land) is a company under Khazanah Nasional. It is the developer undertaking developments in Nusajaya Iskandar, Johor.

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Source: RHB Research - 22 May 2015