UEMS’ 2Q15 results were below expectations. We maintain our NEUTRAL rating with a lower TP of MYR0.95 (8% upside), as market sentiment has deteriorated significantly due to macroeconomicheadwinds and political risk, and hence the sector should take a longer time to recover. Given the challenging environment, we cut our FY15-17F earnings by 20%, as we expect lower land sales going forward.

Below expectations. UEM Sunrise’s (UEMS) 2Q15 results missed our and market expectations, as 1H earnings only made up 32% and 33% of our and consensus forecasts. The weak QoQ growth was due to the completion of Summer Suites in the preceding quarter and Imperia, which is nearing completion. The bottomline was lifted by higher “other income”, mainly from the dividend distribution receivable from a subsidiary under creditors’ voluntary liquidation and recognition of liquidated ascertained damages received from a contractor.

MYR210.4m new sales in 2Q15. 2Q15 new sales achieved MYR210m (vs MYR390m in 1Q15), bringing 1H total to MYR600.4m. 50% of the amount was contributed by overseas sales, including Aurora Melbourne and Quintet Canada. Residensi 22 and Sefina in Mont’ Kiara brought in MYR113.1m and MYR51.5m in sales respectively. Despite the soft market, the newly-launched Serene Heights received a decent booking rate of 50-60%. Meanwhile, Conservatory in Melbourne (GDV: MYR822m) will be rolled out in 3Q. UEMS has already previewed the project in China recently, and the allocation for Chinese buyers (25-30%)is fully taken up. With the launch of Southern Industrial & Logistics Clusters (SiLC 3, roughly MYR350m GDV for Phase 1) in 4Q, UEMS should have a chance to reach its MYR2bn sales target for the year.

Forecasts. We cut our FY15-17 earnings forecasts by 20% as we expect the amount of land sales to be lower vs the previous years’.Unbilled sales remained steady at MYR4.7bn vs MYR4.8bn in 1Q15.

Maintain NEUTRAL. Given the fast deterioration of market sentimentand the bleak outlook for Iskandar property market, we reduce our TP to MYR0.95 (from MYR1.26), based on a larger 70% discount to RNAV (from 60%). Note that trough valuations were at an 87% discount to RNAV during the subprime crisis in 2009. Although current valuations are cheap, we do not foresee any near-term share price re-rating catalyst