Investment Highlights

• We maintain HOLD recommendation on UEM Sunrise (UEMS) with a lower fair value of RM0.43 per share (previously RM0.45) based on a 60% discount to its RNAV (Exhibit 1). We project a net loss of RM18.5mil in its FY20 (vs. profit of RM74.1mil) as we believe its earnings performance continues to be weak. We cut our FY21/22 estimates by 22.4%/6.0% to reflect the timing of recognition and impact of the movement control order (MCO) 2.0. UEMS is scheduled to announce its 4Q results on 24 Feb 2021.

• To recap, UEMS posted a 9MFY20 core net loss of RM134mil (vs. core net profit of RM149.1 mil in 9MFY19). This was also the first losses incurred since its listing in 2008. 9MFY20 revenue dived by 70% YoY mainly due to a slower project progress completion as a result of the Covid-induced MCO.

• UEMS unbilled sales stood at RM1.7bil as of 9MFY20, whereby 74% comprised local projects. Year to date, UEMS has launched projects worth RM900mil in gross development value (GDV), which is near its target GDV of RM1bil for FY20. 9MFY20’s total sales of RM374mil was below its RM1bil target for FY20. Nonetheless, management guided stronger sales in 4QFY20 contributed by Australian project and land sale in Johor.

• UEMS has 18 ongoing projects, mainly residential developments in Iskandar Puteri, Johor, with 7 of them being JV with third parties. One of the key projects in the central region is Kiara Bay, Kepong. This latest township development is 72 acres in land size with a GDV of RM15bil. We are positive on the development due to its strategic location next to the MRR2, near Kepong Metropolitan Park. It also contains a mix of retail stores, and educational and health centres.

• Moving forward, UEMS is planning to launch low-cost residential units in Cheras in 4Q2021, with an indicative GDV of RM1.1bil.

• Despite a weak 9MFY20, we expect a better 4QFY20 with the recognition of A$125mil (RM365.5mil) from the disposal of Aurora Melbourne Central. However, we expect UEMS to still record losses in FY20 of RM18.5mil, albeit narrower than 9MFY20. We trim our FY21–22 net earnings forecasts to RM93mil and RM116.4mil respectively while assuming a net loss of RM18.5mil in FY20.

• Nevertheless, we believe UEMS’ long-term outlook remains stable premised on its unbilled sales of RM1.7bil while its FY21–22 earnings will be mainly supported by the disposals of land and a higher GDV target of RM1.2bil in 2021. At its last price of RM0.40, the stock offers little upside. Maintain HOLD.

Source: AmInvest Research - 8 Feb 2021