UEM Sunrise’s earnings momentum may pick up

UEM Sunrise Bhd
(May 27, RM2.19)
Maintain buy with target price of RM2.78: For the first quarter ended March 31 of financial year 2014 (1QFY14), UEM Sunrise delivered a net profit of RM61 million on the back of RM401 million in revenue. This accounted for only 10% of our full-year estimate (consensus: 12%).

But we expect the earnings momentum to pick up in the remaining quarters of 2014. Some land deals may also crystallise this year.

Revenue for 1Q fell by 42% year-on-year (y-o-y) largely due to the absence of any land sale gains. For 1QFY13, UEM Sunrise recorded RM400 million in land sales (RM135 million profit) from the disposal of land in Puteri Harbour in Johor to Liberty Bridge Sdn Bhd.

Key profit contributors during the period were its East Ledang, Nusa Idaman and Teega property projects in Johor. Key launches during the period include Almas at Puteri Harbour (gross development value: RM258 million).

Excluding land sales, we estimate 1Q earnings to be 19% lower y-o-y. Encouragingly, property development revenue rose by 39% y-o-y.

Sequentially, 1Q earnings jumped 2.1 times mainly due to a review of the group’s overall project estimates in 4QFY13.

New sales achieved for 1QFY14 stood at RM123 milliom against unbilled sales of RM3.2 billion as at March 31, 2014.

UEM Sunrise has lined up several new projects for FY14F that will help underpin its new sales target of about RM3.2 billion for FY14F (FY13: RM3 billion).

Key projects to debut include D’Estuary (Nusajaya, Johor), Sinaran Hills (Kajang, Selangor), and Serene Heights (Bangi, Selangor). We expect Sinaran Hills and Serene Heights to be reasonably well-received, particularly for its landed products.

We expect UEM Sunshine’s share price to have priced in any slowdown in the Iskandar Malaysia property market.

Its balance sheet remains healthy with a net gearing of 0.15 times as at Dec 31, 2013, and a cash balance of RM1.1 billion. — AmResearch, May 27

This article first appeared in The Edge Financial Daily, on May 28, 2014.