Investment Highlights

• We maintain our HOLD recommendation on UEM Sunrise (UEMS) with a lower fair value of RM0.40/share (from an earlier RM0.43/share), 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 RM11mil for its 1HFY21. Excluding exceptional items such as impairment of receivables amounting to RM0.5mil, the company posted a core net loss of RM10.5mil.

• The results were below our and consensus’ expectation due to: 1) higher-than-expected finance costs; and 2) slower construction progress and billings, in which 6 out of 11 launched projects are still at the early stage of construction at below 40%. Therefore, we cut our FY21F net profit forecast by 65% but keep relatively unchanged our FY22–23F forecasts for now. Progress billing could gather momentum over the subsequent quarters from rising sales, supported by unbilled sales of RM2bil as at 30 June 2021 (vs. RM1.7bil YoY), which translate to 1.5x FY21F revenue.

• YoY, the group’s 1HFY21 losses narrowed from RM76mil in 1HFY20, supported by: 1) higher progress billings; and 2) recovering sales momentum since 3QFY20 from a low base in 1HFY20 (Exhibit 3). UEMS chalked up new sales of RM707mil (vs. RM151mil in 1HFY20), attaining 59% of its unchanged FY21F sales target of RM1.2bil.

• Sales continued to improve with projects in the Klang Valley, particularly Residensi AVA and Allevia. These 2 projects alone accounted for 50% of total sales while 31% stemmed from the southern region and another 19% from other developments in the central region.

• QoQ, UEMS posted a larger loss of RM7bil as intensified lockdown badly hit all segments except for its overseas property development, cushioned by higher settlement rates in Aurora Melbourne Central.

• Meanwhile, the group has secured RM207mil in bookings to date, in which 70% came from the central region, particularly for Serene Heights. Moving forward, the company plans to rebalance its landbank portfolio and increase market share in the Klang Valley by divesting non-strategic lands to optimize its cost structure.

• However, we remain cautious on the company’s short term outlook which could take longer time to recover from pandemic losses. As UEMS is trading at a pricey FY21F PE of 83x currently, we think the upside is limited.

Source: AmInvest Research - 26 Aug 2021