Investment Highlights

• We maintain our HOLD recommendation on UEM Sunrise (UEMS) with an unchanged fair value of RM0.45, based on a discount of 60% to its RNAV (Exhibit 2). We make no changes to our FY20–22 numbers.
• UEMS registered a 1HFY20 net loss of RM115.3mil as compared to a net profit of RM70.5mil YoY. Excluding the inventories written down amounting to RM39.4mil, 1HFY20 core net loss came in at RM75.8mil. 1HFY20 revenue fell by 78.3% YoY mainly due to a slower project progress completion as a result of the MCO. Also, as the majority of the company’s projects were launched in 2HFY19, their early stages of construction progress led to lower revenue recognition.
• 1HFY20 revenue was mainly derived from its central region developments (40%) namely, Residensi Solaris Parq, Serene Heights Bangi and Kondominium Kiara Kasih. Meanwhile, 31% were from the southern region, namely Aspira ParkHomes, 68° Avenue and Aspira Lakehomes. The remaining 29% were from its projects in Melbourne, particularly the Conservatory and Aurora.
• The company aims to settle the remaining units in Aurora Melbourne Central (A$14mil) and Conservatory (A$35mil) within the next 6–9 months. Meanwhile, the contract of sale with Scape Australia Management Pty Ltd for the en bloc disposal of serviced apartments plus the retail and car park components in Aurora Melbourne Central for A$125mil will be completed and settled in October 2020.
• UEMS chalked up new sales of RM500mil in 1HFY20 with Residensi AVA in Kiara Bay in Kuala Lumpur capturing the highest interest followed by Serene Heights Bangi and Senadi Hills. Nevertheless, the company remains cautious on the outlook and anticipates sales and GDV targets of RM1.0bil each for FY20.
• Despite a weak 1HFY20, we expect UEMS to perform better in 2HFY20 with recognition from its Australian projects amounting to A$174mil (RM522mil). We maintain our FY20– 22 net earnings forecasts at RM74.1mil, RM119.9mil and RM123.8mil respectively.
• We believe the long-term outlook for UEMS remains stable premised on its unbilled sales of RM1.7bil while its FY20–21 earnings will be mainly supported by the Australian projects which have been completed. As there is little upside potential, we maintain our HOLD recommendation on UEMS.

Source: AmInvest Research - 25 Aug 2020