Investment Highlights

• We maintain HOLD recommendation on UEM Sunrise (UEMS) with an unchanged fair value (FV) of RM0.60 based on a discount of 50% to our RNAV and a neutral ESG rating of 3- star (Exhibits 6 & 7). The FV implies an FY24F PE of 30x, 1 standard deviation above its pre-pandemic 2018-2019 median.

• UEMS’ 1HFY23 core net profit (CNP) of RM38mil made up 39% of our full-year forecast and 47% of street’s. Nevertheless, we deem 1HFY23 earnings to be within expectation in view of the potential 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, Batang Padang and Bidor lands.

• YoY, the group’s 1HFY23 CNP fell 5% YoY. Revenue declined by 23% YoY, attributed to the lower contribution from land sales in 1HFY23, which totaled RM69mil vs. RM178mil in 1HFY22.

• However, UEMS’s CNP margin improved to 6.6% in 1HFY23 from 5.1% in 1HFY22 due to higher project cost savings from completed projects.

• In 1HFY23, UEMS secured new sales of RM1.49bil (3.4x YoY), attaining 99% of its FY23F sales target of RM1.5bil (Exhibit 3). UEMS’ 1HFY23 launches of RM2.7bil (+35% YoY) have surpassed its FY23F target of RM2.5bil. The key launches were The MINH, The Connaught One and Collingwood (Exhibit 4).

• The stronger-than-expected sales and launches were attributed to the recognition of the en bloc sales of its Collingwood project valued at RM874mil.

• To recap, UEMS disposed its 1.33 acres of land in Collingwood to Greystar Real Estate Partners and UEMS will serve as the developer for the project. The maiden contribution from the Collingwood project is expected to kick in in FY25. Excluding the Collingwood project, we anticipate UEMS's FY23F sales target and targeted launches to remain at the same level.

• New launches made up 83% of sales, while remaining sales came from completed inventories (9%) and ongoing projects (8%).

• We observed a declining trend on UEMS’ inventory level (-47% YoY, -17% QoQ) (Exhibit 5), primarily due to higher sales of completed inventories in Symphony Hills as well as projects in Iskandar Puteri, namely Estuari, Almas and Aspira Square.

• As at end-July 2023, UEMS has achieved an encouraging take-up rate of 31% for The MINH and 45% for The Connaught One despite launching them less than 3 months ago.

• In September 2023, UEMS plans to launch its second high-rise project in Kiara Bay, namely Residensi ZIG with a total gross development value (GDV) of RM646mil. Notably, its first product in Kiara Bay called Residensi AVA (serviced apartment) is already fully taken up.

• QoQ, UEMS posted a 2x improvement in CNP and 51% increase in revenue, primarily due to recognition of land sales amounting to RM69mil in 2QFY23. Besides, its CNP margin improved to 6.8% in 2QFY23 from 6.4% in 1QFY23 due to favourable share of results from joint ventures projects such as Nusajaya Tech Park and Horizon Hills in Iskandar Puteri as well as Forest Heights in Seremban.

• We expect the group’s FY23F revenue and CNP to be largely supported by its unbilled sales of RM2.7bil (+59% QoQ), which represents a cover ratio of 1.7x of FY23F revenue (Exhibit 3).

• However, UEMS is currently trading at an unexciting FY24F PE of 32x, higher than its pre-pandemic 2018-2019 median of 23x. Hence, we see limited upside potential at this juncture.

Source: AmInvest Research - 21 Aug 2023