UEMS reported 1HFY20 to a core LATMI of -RM63.5m (from RM93m YoY) which came in below ours and consensus full year profit forecasts. New sales of RM53.5m was achieved in 2QFY20, bringing 1HFY20 to RM150.9m which represents 15% of FY20 revised sales target of RM1bn (from RM2bn). 1HFY20 launches stood at RM205m in comparison to the revised GDV launch target of RM1bn (from RM2bn), with bulk of the remaining launches to take place in 4QFY20. We lower our FY20/21/22 forecasts by -46.5%/-9.7%/-12.5% and maintain HOLD with a lower TP of RM0.45 (from RM 0.49) based on an unchanged discount at 80%.

Below expectations. UEMS reported 2QFY20 core LATMI of -RM59.9m (from - RM3.5m QoQ, RM68.8m YoY), bringing 1HFY20 to a core LATMI of -RM63.5m (from RM93m YoY) which came in below ours and consensus full year profit forecasts of RM66.9m and RM99.1m respectively. This was largely attributed to larger-thanexpected running costs incurred during the MCO period. 1HFY20 core LATMI sum has been arrived after excluding -RM55.4m of EIs (largely from -RM39m from inventory write down and -RM15m of forex loss). No dividends were declared.

QoQ. Revenue fell -42.8% to RM112m due to lower revenue generating sources during the MCO period. Subsequently, core LATMI widened to -RM59.9m (from - RM3.5m) in tandem with revenue coupled with unavoidable operating costs and wider losses from the JV operations.

YoY/YTD. Revenue plunged -88.8%/-78.3% due to lower sales and operating activities during the MCO period coupled with a larger settlement of Australian projects throughout 1HFY19. A core LATMI of -RM59.9m/-63.5m was recorded (from RM68.8m/RM93m) in tandem with the fall in revenue coupled with lower margins as projects are in the early stages of construction, unavoidable operating costs during the MCO period and wider losses from the JV operations.

New sales of RM53.5m was achieved in 2QFY20, bringing 1HFY20 to RM150.9m which represents 15% of FY20 revised sales target of RM1bn (from RM2bn). Note that out of the RM1bn sales target, c.RM300 is attributed to potential land sales which brings the FY20 revised property sales target to RM700m. 1HFY20 launches stood at RM205m in comparison to the revised GDV launch target of RM1bn (from RM2bn), with bulk of the remaining launches to take place in 4QFY20 largely coming from a high-rise development in Mont Kiara (RM542m GDV). Note that all other launches for FY20 comprises of small launches with GDV less than RM100m each.

Outlook. Unbilled sales on the local front stood at RM1.4bn, representing a cover ratio of 1.7x cover ratio towards the local property development revenue. Meanwhile on the international front, UEMS is expected to recognise a lumpy gain from its handover of en-bloc service apartment in 4QFY20 (GDV worth AUD125m). UEMS has secured c.RM500m of sales and booking (YTD) with RM283m being recorded from late-July onwards. This can be attributed to the reintroduction of the HOC and “The Happy Chase Campaign” carried out by UEMS.

Forecast. We lower our FY20/21/22 forecasts by -46.5%/-9.7%/-12.5% to reflect lower sales, launches, progressive billings recognition and lower margins in FY20 coupled with a higher effective tax rate arising from the lumpy Australian handover.

Maintain HOLD with a lower TP of RM0.45 (from RM0.49) based on an unchanged discount at 80% to estimated RNAV of RM2.24. We see a lack of near-term catalyst given the subdued sentiment for property outlook in Johor coupled with weak sales and launch activities by the company during this pandemic.

Source: Hong Leong Investment Bank Research - 25 Aug 2020