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Thursday, December 1, 2016

Brokers Report: UEM Sunrise - Lower Margins



Maintain OUTPERFORM with higher target price (TP) of RM1.85




UEMS delivered a lower than expected 3QFY16 net profit of RM36.3m (-23.9% YoY, -33.6% QoQ), primarily due to change in product mix, higher marketing costs, liquidated ascertained damages (LADs) and higher taxes during the quarter. YTD, the Group registered RM94.0m (-49.1% YoY), which constituted c.58% and c.49% of our and consensus full year net profit estimates. On year to year comparison, 9M15 was also lifted by one-off gain. Separately, we understand that the litigation with IRB, whereby the court ruled in favor of IRB and issued UEMS penalty of RM73.8m, is now pending an appeal to contest IRB’s rejection earlier. UEMS believes that it has a strong case, and hence no provision was made as yet. As for launches in FY17, UEMS plans to launch more projects, which among others include Solaris 3, Artisan Hills, St Kilda and Alderbridge. All told, FY16-18 earnings are adjusted downwards by 14%/10%/10% to account for lower margins. Net gearing rose to 0.4x (from 0.3x) due to landbanking. Maintain Outperform and RM1.85 TPhowever, pegged at c.40% to our RNAV.
  • On track to meet sales target. Albeit softer sales in 3QFY16 at RM154m, from RM198m in 2Q, it is still on target to meet its sales target of RM1bn in FY16. Again, the main projects driving sales are Conservatory, Melbourne (RM222m), Laman Melia, Gerbang Nusajaya (RM102m) and Serene Heights (RM84m). Total GDV launched YTD is RM558m, with unrecognized revenue at RM4.1bn (from RM4.3bn in 2Q16). By end-2016, we expect the Group to launch projects such as SiLC 3 (RM500m GDV) and a landed project in Bukit Indah, Iskandar Malaysia (RM114m). Similar to other developers, UEMS has stepped up its marketing campaigns but local sales remain stubbornly weak due to the tough operating environment currently.
  • Potential launches in 2017. While still early, we understand that UEMS has plans to unveil more projects in 2017 with potentially higher sales target (vis-à-vis FY16 sale target of RM1bn), with projects worth c.RM485m from Gerbang Nusajaya while from the central region, projects such as Solaris 3 (RM1.3bn GDV) and Artisan Hills (RM1.6bn GDV) are among the projects to be launched. As for overseas, 2 projects are due to be launched which include St Kilda, Melbourne (c.RM1bn) and Alderbridge, Vancouver (RM1.5bn). We expect Management to offer more clarity on the launches and sales target by early-2017. Remaining landbank is c.13k acres with estimated GDV in excess of RM100bn.


Source: PublicInvest Research - 01 December 2016

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