UEMS targets to hand over the remaining units of its completed Australian projects in FY20 which comprises of AUD44m from Conservatory and AUD148.5m from Aurora Melbourne Central. Plans of venturing overseas for more projects will now be relooked into as the company remains cautious on the foreign property market. On the local front, management will be carrying out more cost-savings effort such as allocating its sales and marketing expenses more efficiently and carrying out more in-house efforts as opposed to outsourcing. We expect UEMS to revise its Sales and GDV launch targets for FY20 as the property market is expected to take a hit from Covid -19. We maintain our forecast and HOLD rating with an unchanged TP of RM0.44.

Foreign ventures. UEMS targets to hand over the remaining units of its completed Australian projects in FY20 which comprises of AUD44m from Conservatory and AUD148.5m from Aurora Melbourne Central (including AUD112.5m of an en-bloc sale). With large settlements of its units back in 2019, UEMS now has an improved balance sheet with net gearing easing to 0.3x (as of FY19) from 0.5x (back in FY18) largely due to the repayment of AUD denominated borrowings which were used to fund its Australian projects. As such, upcoming proceeds of remaining units can be fully used to cushion the impact of Covid-19 towards its local operations. UEMS’ initial plan of venturing overseas for more projects will now be relooked into as the company remains cautious on the foreign property market.

Malaysian operations. The recent MCO has hampered UEMS’ progressive billings (due to construction works halted) and sales numbers with respect to both attaining new bookings and converting bookings to sales. UEMS had gotten approval to complete the construction of some of its projects during the MCO (e.g. Kiara Kasih and Astrea) but we gather that the application process and time required to mobilise its workforce could potentially total up to a couple of weeks. With regards to the expectation of a softer market in 2020, management expects the price correction, if any, to be rather mild in FY20 and highly dependent on a product offering and its location. Management will be carrying out more cost-savings effort such as allocating its sales and marketing expenses more efficiently and carrying out more in -house efforts as opposed to outsourcing.

Targets likely to be revised. We expect the public to put the purchase of houses on hold given the current economic condition, at least in the near-term. As such, UEMS, alongside other developers, will likely be revising its Sales and GDV launch targets for FY20 as the property market is expected to take a hit from Covid-19. To recap, UEMS had initially set sales and GDV launch targets both at RM2bn.

Forecast. Unchanged.

Maintain HOLD with an unchanged TP of RM0.44 based on an unchanged discount at 80% to estimated RNAV of RM2.21. We see a lack of near-term catalyst given the overall potential slowdown in property transaction volumes in addition to the subdued sentiment for property outlook in Johor. FY20 earnings will be supported by the recognition of handover of the completed Australian projects despite the weak Malaysian market.

Source: Hong Leong Investment Bank Research - 25 May 2020