Investment Highlights

• We maintain our HOLD recommendation on UEM Sunrise (UEMS) with an unchanged fair value of RM0.25/share, based on a discount of 70% to our revised RNAV and a neutral ESG rating of 3 stars (Exhibits 5 & 6). The FV implies an FY24F PE of 12x, at parity to the average for larger cap property stocks currently.

• UEMS’s FY22 core net profit (CNP) of RM75mil came in below our forecast and consensus’. It was 16% below our forecast and 7% below street’s, mainly attributed to lower-thanexpected property sales in FY22.

• We lower our FY23F/FY24F CNP by 7%/6% to reflect the slower revenue recognition from 2 key projects, The Minh and The Connaught One, in which their launch dates were postponed due to the delay in obtaining authority approvals.

• We also take the opportunity to introduce our FY25F earnings with a growth of 8% on expectation of a pick-up in launches and sales momentum.

• YoY, the group’s FY22 CNP returned to the black to RM75mil due to a 24% increase in revenue. This was mainly driven by a 21% YoY surge in the Malaysian property development’s FY22 revenue.

• The higher revenue were attributed to higher progress billings and improved construction progress works from local projects, coupled with the sales recognition of 33 industrial plots in Southern Industrial and Logistics Clusters in Iskandar Puteri, Johor and other non-strategic land. Land sales contributed 21% to its FY22 total revenue. Driven by land sales with higher profit margin, the domestic property development’s PBT swung to the black at RM228mil.

• In FY22, UEMS secured new sales of RM924mil (-37% YoY), attaining a mere 62% of its earlier sales target of RM1.5bil (Exhibit 3). Ongoing projects made up 39% of sales, while remaining sales came from completed inventories (46%) and new launches (15%).

• The lower YoY property sales were attributed to slower FY22 launches of RM517mil (vs. RM550mil in FY21), which were only 16% of its earlier targeted launches of RM3.3bil.

• Despite lower sales in FY22, we expect the group’s FY23F revenue and CNP to be largely supported by its completed inventories (Exhibit 4) and unbilled sales of RM1.8bil, which represent a cover ratio of 1.1x of FY23F revenue (Exhibit 3).

• Meanwhile, management is maintaining the same sales target of RM1.5bil (+62% YoY vs actual FY22 sales) for FY23F on the back of new launches worth RM2.5bil. The planned launches include key projects that were previously postponed, The Minh (GDV: RM950mil) and The Connaught One (GDV: RM740mil), which are scheduled to be launched in 1HFY23.

• QoQ, UEMS posted a 6% decline in revenue, primarily due to lower sales of RM188mil in 4QFY22 vs. RM297mil in 3QFY22. In addition, CNP dropped by 40%, mainly driven by a higher effective tax rate as a result of higher portion of non-deductible expenses and unrecognised tax losses for loss-making entities.

• As UEMS is currently trading at an unexciting FY24F PE of 13x, near its pre-pandemic valuations, we see limited upside potential at this juncture.

Source: AmInvest Research - 24 Feb 2023