• UEM Sunrise’s 9M16 results greatly disappoint us as it came only 49% of ours and consensus full year forecast.

• Profit margins shrink by 8ppt on average yoy due to generous rebates to boost sales and clear inventory. This is further compounded by launches of affordable product offerings which give lower margins.

• Going forward, we expect profit margins to be thin as group will continue to face intense competitions from both local and foreign players

9M16 net profit tank by half yoy, from RM185m to RM94m. Despite the revenue is in-line with our full year forecast, the bottomline suffered due lower margin products and costs such as finance and marketing escalated. This is further compounded by reduced profit contribution from joint-ventures partners.

Dismal earnings performance. Group’s earnings continue to disappoint as higher rebates and marketing cost to clear inventory eats into profit margins. Net profit margin reduced by -8.5-ppt from 16.2% to 7.7% yoy comparison. In addition, joint-venture projects with partners continue to disappoint too at the bottomline, down by -29% yoy.

A tight race. We revised our TP to RM1.09 as we rolled over our valuation to FY17E. We reduced our earnings for FY16/17/18E by 41%, 32%, and 24% respectively. We foresee profit margins for the group to be challenging going forward. Our TP is based on PER and PBV -1SD of 12.8x and 1.2x respectively

Source: BIMB Securities Research - 1 Dec 2016