Investment Highlights

• We downgrade UEM Sunrise (UEMS) to HOLD from BUY with an unchanged fair value of RM0.48 based on a discount of 60% to its RNAV (Exhibit 2). We cut our FY20 net profit forecast by 46% to RM84.5mil to reflect the timing of recognition as a result of the movement control order (MCO) and Covid-19 pandemic. We leave our FY21–FY22 numbers unchanged. UEMS’ share price has gained more than 10% since our previous update and the stock currently offers limited upside, hence we downgrade it to HOLD.

• UEMS registered a 1QFY20 core net loss of RM6.5mil as compared to net profit of RM25.3mil YoY. 1QFY20 revenue fell by 53.3% YoY mainly due to the completion of several projects namely Sefina, Almas and Serimbun; and the impact of the MCO and Covid-19 pandemic. Meanwhile, as the majority of the company’s projects were launched in 2HFY19, the early stages of construction progress led to lower revenue recognition.

• UEMS chalked up new sales of RM97mil in 1QFY20 (RM270mil as at 13 June 2020) whereby 48% were derived from the southern region developments mainly from Aspira ParkHomes, Estuari Gardens in Puteri Harbour and Denai Nusantara near Gerbang Nusajaya. Meanwhile, 43% were largely from the central region, namely Residensi Solaris Parq, Residensi Astrea in Mont’Kiara and Residensi AVA in Kiara Bay. The remaining 9% were from projects in Melbourne, particularly the Conservatory. Management is currently evaluating the company’s initial sales target of RM2.0bil. UEMS has fully sold the Aurora Melbourne Central and Conservatory as at 6 June 2020 with the remaining values of A$26mil and A$36mil respectively to be settled.

• UEMS has just acquired a freehold development site at 21–53 Hoddle Street, Collingwood measuring 5,390 square meters in Melbourne for A$43mil. It is intended for a mixed use development with an estimated GDV of A$250mil. The company is planning to launch the project by the end of 2021.

• The key growth for UEMS for FY20 and beyond will be the Kiara Bay project. Situated on a 72.73-acre leasehold land, the first phase of Kiara Bay will be a high-rise residential tower, namely Residensi AVA comprising 870 condominium units with built-ups ranging from 800 sq ft to 1,250 sq ft. The selling price ranges from RM500K to RM900K, with a GDV of RM656mil. We expect the project to be well received given its strategic location along the MRR2 (within 5km from DUKE, NKVE and LDP) and a growing young population in that area.

Source: AmInvest Research - 22 Jun 2020