Investment Highlights

• We maintain 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 6 & 7). The FV  implies an FY24F PE of 12x, at parity to the average for  larger cap property stocks currently.

• UEMS’ 1QFY23 core net profit (CNP) of RM13mil made up  13% of our forecast and 15% of street’s. Nevertheless, we  deem 1QFY23 earnings to be within expectation in view of  the potential recognition of land sale in 2HFY23 with a  combined value of RM161mil and estimated gain of RM40- 50mil. Hence, we have made no changes to our earnings  forecast.

• To recap, UEMS entered into a sales and purchase  agreement with vendors in December 2022 to dispose of its  Gerbang Nusajaya and Tapah lands.

• YoY, the group’s 1QFY23 CNP fell 34% YoY due to a 42% YoY decline in revenue. This was mainly due to the lower  contribution from land sales in 1QFY23, which totaled  RM29mil vs. RM165mil in 1QFY22. 

• UEMS’s CNP margin improved to 6.4% in 1QFY23 from  4.6% in 1QFY22 due to higher project cost savings from its  completed projects.

• In 1QFY23, UEMS secured new sales of RM168mil (+53%  YoY), attaining a mere 11% of its FY23F sales target of  RM1.5bil (Exhibit 3). Ongoing projects made up 43% of  sales, while remaining sales came from completed  inventories (57%). 

• We observed a declining trend on UEMS’ inventory level (- 53% YoY, -13% QoQ) (Exhibit 5), primarily due to higher  sales of completed inventories in the central region,  particularly Symphony Hills. 

• Given the current low level of completed inventories (11%  of FY23F revenue), we believe UEMS’ FY23F sales target will be mainly supported by its new launches of property  worth RM2.5bil (Exhibit 4).

• Despite the absence of any new property launches in  1QFY23, UEMS is on track to launch the majority of its  projects, including The MINH, The Connaught One and  KMP7 Kiara Bay with a combined gross development value  of RM2.4bil in 2QFY23 and 3QFY23 (Exhibit 4).   

• Presently, UEMS has launched the pre-sales for The MINH and The Connaught One. Both projects have received  positive responses from buyers. Notably, the first tower of The MINH has achieved a pre-sale of 70% prior to its  official launch on 27 May 2023. 

• QoQ, UEMS posted a 28% decline in revenue, primarily due to lower sales of RM168mil in 1QFY23 vs. RM188mil  in 4QFY22. However, CNP dropped by only 4% due to greater project cost savings from completed projects. 

• We expect the group’s FY23F revenue and CNP to be largely supported by its unbilled sales of RM1.7bil, which  represent a cover ratio of 1.1x of FY23F revenue (Exhibit 3). 

• 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 - 19 May 2023