UEMS (5148) - UEM SUNRISE BERHAD - Slower Than Expected Progress Billings

UEMS started FY16 with a paltry net profit of RM3m (-94.4% YoY, -95.9% QoQ) which was way below our and consensus expectations. The 1QFY16 net profit only constituted 1% of our and consensus full year net profit estimates. The letdown was primarily due to slower-than-expected progress billings for its main revenue contributors such as Acroris and Aurora Melbourne Central which caused its revenue to decline by c.38% YoY. Unbilled sales from Aurora Melbourne Central are c.RM2bn, but only RM39m has been recognized so far. In addition, land sales revenue was also minimal with only RM1.8m recognized. We expect the Group to complete a land sale in Puteri Harbour this year with expected revenue of c.RM300m, which could boost earnings in the subsequent quarters. While earnings should also gather speed with unbilled sales of RM4.7bn currently, we believe our earlier billings assumptions are too aggressive and hence have adjusted our FY16-17 earnings by -26%/-20% to account for the slower than expected progress billings. Maintain Outperform and RM1.85 TP, pegged at c.40% to our RNAV.

• 1QFY16 Sales of RM229m. With lack of launches, UEMS’ sales as expected were slow at RM229m during the quarter. Again, sales were driven mainly by overseas projects with c.RM161m from The Conservatory, Melbourne alone. To date, we understand that it has launched 2 projects i.e Denai Nusantara (RM189m GDV) and Melia Residences (RM280m GDV). Unbilled sales as at 1QFY16 was RM4.7bn, unchanged from a quarter before.
• FY16 sales target of RM1.5bn. Despite a slower start, we believe UEMS should be able to ramp up sales in the subsequent quarters with more projects worth c.RM1.5bn expected to be launched in 2HFY16.The focus is to launch more landed mid-market and affordable homes products, and clearing existing inventories in Iskandar, Johor. Meanwhile, for overseas project, its third project in Melbourne i.e. St Kilda, Melbourne is expected to be launched end-2016 (RM750m GDV) and the development planning has also started for its second project in Vancouver, Canada (Alderbridge, RM1.5bn GDV). Separately, UEMS announced a joint land development agreement with Telekom Malaysia (TM) whereby UEMS undertakes to develop a 1.7-acre land owned by TM. TM will be paid a minimum of RM150m in a staggered payment structure and entitled to 5% of the agreed GDV. The land, which is located along the southern side of Jalan Raja Chulan, will be developed as a mixed development but GDV is still subject to development order approval. We estimate the GDV is easily in excess of RM1bn, with assumptions of 10x plot ratio, 70% efficiency and RM2000 average selling prices. That said, given current soft market, we believe the launch will not be so soon.

Source: PublicInvest Research - 30 May 2016

UEMS (5148) - UEM SUNRISE BERHAD - Slower Than Expected Progress Billings
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