UEMS reported FY20 core LATMI of -RM180.9m (from RM306.1m YoY) which came in below ours and consensus full year profit forecasts, largely due higher than expected operating costs incurred. New sales of RM752m was achieved in 4Q20, bringing FY20 sales to RM1.1bn which met its FY20 sales target of RM1bn. For FY21, UEMS has set a sales target of RM1.2bn (+9% YoY) and planned GDV launch of RM1.2bn with the bulk coming from Serene Heights Bangi, Taman Pertama Cheras and KAIA Heights Equine. Unbilled sales on the local front stood at RM1.8bn, representing a cover ratio of 3.0x towards the local property development revenue. We cut our FY21/22 forecasts by 6%/5%to reflect lower margins from its Property Development. Maintain HOLD with a lower TP of RM0.48 (from RM0.50).

Below expectations. UEMS reported 4Q20 core LATMI of -RM87.4m (QoQ: - RM28.5m, YoY: RM164.9m), bringing FY20 core LATMI to -RM180.9m (from RM306.1m SPLY). The results came in below ours and consensus full year loss expectations (-RM9.4m and -RM22.9m, respectively) largely due higher than expected operating costs incurred from its Property Development segment. FY20 core LATMI sum has been arrived after excluding -RM86.2m of EIs (mainly -RM35.8m from impairment of inventory, -RM17.5 for impairment of land and -RM26.5m of impairment of property investment). No dividends were declared.

QoQ. Revenue increase by >100% mainly due to the settlement of Aurora Melbourne Central’s serviced apartments of RM355m as well as contribution from higher sales and construction activities of local projects. However, core LATMI widened to -RM87.4m from -RM28.5m largely due higher cost from its Property Development segment (from low margin products) as well as contributed by poorer share of results from joint ventures and associates.

YoY/YTD. UEMS recorded a core LATMI of -RM87.4m in 4Q20, bringing core FY20 LATMI to -RM180.9m from a core PATMI of RM164.9m in 4Q19 (RM306.1m for FY19) on the back of impacted operations by the ongoing pandemic.

New sales of RM752m was achieved in 4Q20, bringing FY20 sales to RM1.1bn which met its FY20 sales target of RM1bn. The higher sales achieved in 4Q20 (as compared to 9M20) was mainly due to bulk of the remaining launches were taking place in Nov/Dec. FY20 launches stood at RM894m with RM686m worth of launches taking place in 4QFY20 largely coming from a high-rise development in Mont Kiara (RM545m GDV).

Outlook. For FY21, UEMS has set a sales target of RM1.2bn (+9% YoY) and planned GDV launch of RM1.2bn with the bulk coming from Serene Heights Bangi, Taman Pertama Cheras and KAIA Heights Equine. Unbilled sales on the local front stood at RM1.8bn, representing a cover ratio of 3.0x towards the local property development revenue. Nonetheless, we remain cautious on the margins generated by UEMS given the ongoing discounts given for its unsold units coupled with the ongoing losses from its Property Investment division.

Forecast. We cut our FY21/22 forecasts by 6%/5%to reflect lower margins from its Property Development.

Maintain HOLD with a lower TP of RM0.48 (from RM0.50) based on an unchanged discount at 75% to our estimated RNAV of RM1.94 after imputing changes in our earnings forecast. We see a lack of near-term catalyst given the subdued sentiment for property outlook in Johor coupled with weak sales and compressed margin from its products.

Source: Hong Leong Investment Bank Research - 25 Mar 2021