Investment Highlights

• We maintain our HOLD recommendation and forecasts on UEM Sunrise (UEMS) with an unchanged fair value of RM0.43, based on a 60% discount to its RNAV and a neutral ESG rating of 3 stars (Exhibits 4 & 5).

• UEMS recorded a net loss of RM4.3mil for its 1QFY21. Excluding exceptional items such as dividend income from investment and impairment of receivables amounting to RM0.9mil, the company posted a core net loss of RM3.4mil.

• The results appear to be below our and consensus’ expectation due to slower-than-expected construction progress, in which 8 out of 11 launched projects are still at the early stage of construction. However, we maintain our forecasts for now as progress billing could gather momentum over the next quarters from rising sales, supported by unbilled sales of RM1.9bil (vs. RM1.8bil YoY), which translates to 1x FY21F sales.

• YoY, the group’s losses narrowed from RM6.5mil in 1QFY20, supported by: 1) higher progress billings; and 2) recovering sales momentum since 3QFY20 onwards from the worst base in 1HFY20 (Exhibit 3). UEMS chalked up new sales of RM271.7mil (vs. RM97.4mil in 1QFY20), attaining 23% of its unchanged FY21F sales target of RM1.2bil.

• Improved sales were largely contributed by projects in Klang Valley, particularly Residensi AVA and Allevia. These 2 projects alone accounted for 44% of total sales while 41% stemmed from the southern region and another 15% from other developments in the central region.

• Better QoQ performance (vs. a net loss of RM48mil in 4QFY20) was attributed to its property development in Malaysia which posted better results, partially offsetting the losses from property investment and hotel operations.

• To achieve its FY21F sales target, the company has lined up 11 launches in 2021 in which 74% are located in the central region. On top of that, Kiara Bay remains the key highlight while the F&B outlets such as the The Beat is still on track to open in 3Q21, attracting the crowd and traffic to the township and boosting property sales, particularly for Residensi AVA.

• Australian projects are currently fully sold out with the pending settlement of A$43mil (~RM138mil) expected to be completed by the end of the year. Hence, the group is planning to launch Collingwood, which has a GDV of A$250mil (RM788mil), in 1H2022.

• We expect the group’s FY21F–23F earnings to be mainly supported by new launches locally, especially Kiara Bay, which could be another new milestone after the success of Mont Kiara. However, given that FY22F PE of 22x is near its 4-year average, we think the upside is limited.

Source: AmInvest Research - 25 May 2021