UEM Land - 9M12 below expectations

Period    3Q12 / 9M12 

Actual vs. Expectations    9M12 net profit of RM247m was below expectations, making up 67% of street and 66% of ours. This is likely due to softer 9M12 sales achieved of RM1.24b (-22% YoY) vs. their initial FY12E sales target of RM3b (refer overleaf). 

Dividends   None as expected. 

Key Results Highlights    YoY, 9M12 net profit grew 53% YoY on the back of stronger billings arising from SummerSuites, MK28, Nusajaya projects (Nusa Idaman, East Ledang, Nusa Bayu. EBIT margins rose by 3.7ppt to 23.1% given higher project margin mix, particularly arising from the Klang Valley projects. Furthermore, the group is enjoying stronger Horizon Hills sales, resulting in 115% increase in associates/JCE. 

 QoQ, 3Q12 pretax profit fell by 16% largely due to lower land sales recognition vs 2Q12. 

Outlook   Management guides a lower FY12E sales target of RM2.0b (-9% YoY), meaning 4Q12 must book in RM800m sales. No guidance yet for FY13E sales target, although the new project launches could amount to GDV of RM4.5b. 

Change to Forecasts    Reducing FY12-13E net profit by 11%-13% as we lower FY12-13E sales by 26%-18% to RM2.0bRM2.7b (refer overleaf). 

Rating  Maintain MARKET PERFORM

Valuation    Increasing TP to RM2.28 (RM2.07 previously) based on lower 33%* discount (39% previously) to FD SoP RNAV of RM3.38. 

 Although earnings and sales have disappointed, we are expecting strong news flows over FY13 (e.g. Autocity@Gerbang Nusajaya, more tie-ups with Singaporean or foreign developers in Nusajaya, Gerbang Nusajaya to get Coastal Highway connection, news on Singapore-Johor MRT). UEMLAND is a Johor property market proxy, which we are bullish on. 

 However, investors should remain nimble given that near term. Negative headwinds could be potential exclusion from the FBMKLCI and upcoming RCPS redemption of RM400m cash (vs. their current cash pile of RM575m and net gearing of 0.1x) if the share price is at most RM2.30. 

Risks   Unable to meet it sales target. An up-cycle in Singapore’s property sector. GE and sector risks, including negative policies.  

Source: Kenanga