KUALA LUMPUR: UEM Sunrise Bhd is taking steps to widen its earnings base and shift away from its stronghold Nusajaya, Iskandar Malaysia, Johor, as a measure to counter the supply glut of residential property created by aggressive Chinese developers in the southern state.

UEM Sunrise chief executive officer Anwar Syahrin Abdul Ajib said the property developer will expand its land bank outside Nusajaya this year.

“We see diversification of land bank as important because 77% of our land is in Johor. We still believe in the [Iskandar] story and [the] property [sector] there is big. But there is a downturn now and we just have to weather the storm,” he told reporters at a press conference after the company’s annual general meeting yesterday.

In particular, UEM Sunrise is interested in purchasing land in the Klang Valley, Penang, Sabah and Sarawak with the RM500 million per year land banking budget it has.

Furthermore, UEM Sunrise (fundamental: 1.5; valuation: 2) said that it will be “very careful” about building in Nusajaya going forward and will focus on only product offerings which cater to buyers’ needs.

“It will be a matter of being more responsible in launching ... It is a matter of launching what we can chew [in Iskandar],” said Anwar Syahrin.

Out of the eight property development projects to be launched in 2015, half of them will be located in the Klang Valley and three of them in Nusajaya, with the remaining one in Melbourne, Australia.

These developments have a total gross development value of RM3.7 billion and will help UEM Sunrise achieve its RM2 billion sales target for the financial year ending Dec 31, 2015 (FY15).

Despite current conditions, Anwar Syahrin said that there is still demand for property in Iskandar, citing UEM Sunrise’s launch of the superlink homes project called Estuari, Puteri Harbour, and the Southern Industrial and Logistics Clusters industrial area as examples.

“We are encouraged by the interest shown in Estuari, even at price points of RM1.2 million to RM1.3 million for a superlink house,” said Anwar Syahrin.

He has also dismissed the Monetary Authority of Singapore’s warning to Singaporeans about the risks of buying properties overseas, with Johor singled out as an example, calling it “a mismatch of opinions”.

“People always have opinions [about Iskandar]. If we look at [the] interest, a lot of industries in Singapore are willing to relocate to Johor. That shows that there may be some mismatches in opinion.

“Businesses on the ground see the value of having business locations in Johor, where [the] operating cost and land cost are cheaper,” explained Anwar Syahrin.

Meanwhile, the company announced that its net profit declined 13.6% to RM53.14 million, compared with RM61.5 million a year ago for the first quarter ended March 31, 2015 (1QFY15), due to the higher selling cost and lower contribution from associates and joint ventures.

Lower profits came despite the company’s 3.9% increase in revenue for the quarter to RM417.4 million, versus RM401.55 for the same period last year. Earnings per share slid slightly to 1.17 sen for 1QFY15 from 1.36 sen for 1QFY14.

Last year, UEM Sunrise’s earnings suffered from its exposure to the southern region of Malaysia. Its net profit for FY14 was 17% lower at RM479.9 million, compared with a year ago.

While the company exceeded its revised sales target of RM2 billion and saw RM2.4 billion in sales last year, projects in Nusajaya only contributed a small portion of RM253.7 million.

It was the projects in the Klang Valley and Australia that contributed RM681.3 million and RM1.5 billion in sales, respectively, which softened the impact of Nusajaya’s poor showing in UEM Sunrise’s earnings.

On its prospects going forward, UEM Sunrise reported that it remains “cautious” but “confident that it will be able to sustain its performance for FY15”.

This article first appeared in The Edge Financial Daily, on May 22, 2015.