UEMS reported 1Q21 core LATMI of -RM4.8m (4Q20: -RM87.4m, 1Q20: -RM3.7m). We deemed the results to be inline as we are expecting stronger contribution ahead from local developments as well as settlement of overseas projects. New sales of RM272m was achieved in 1Q21 (1Q20: RM97m), representing 23% of FY21 sales target (RM1.2bn). Maintain our forecast, and HOLD recommendation with a slightly higher TP of RM0.49 (from RM0.48).

Within expectation. UEMS reported 1Q21 core LATMI of -RM4.8m (4Q20: - RM87.4m, 1Q20: -RM3.7m). We deemed the results to be inline (HLIB’s full year profit forecast stands at RM47.6m and consensus at RM70.6m) as we are expecting stronger contribution ahead from local developments as well as settlement of overseas projects. No dividend was declared.

QoQ. Revenue for 1Q21 was lower by -58.7% mainly due to the settlement of serviced apartments in Australia of RM355m during 4Q20. Excluding this, revenue remained flattish QoQ. 1Q21 saw a better contribution from the share of JVs and associate, recording an RM8.7m contribution (vs loss of -RM49.9m in 4Q20) as well as better margin contribution from local developments, which in turn narrowed the loss to -RM4.8m from a loss of -RM87.4m.

YoY. UEMS chalked in a strong growth of 29% owing to higher sales and progressive billings, which majority came from Central region development of Residensi Solaris Parq in Dutamas, followed by Serene Heights Bangi and Kiara Kasih in Mont Kiara as well as the Southern region contribution of the ongoing development of Aspira ParkHomes, followed by Estuari Gardens and Senadi Hills. However, core LATMI widened slightly to -RM4.8m (from a core LATMI of -RM3.7m) due lower margin as well as higher finance cost from the additional drawdown in the current quarter.

New sales of RM272m was achieved in 1Q21 (vs RM97m achieved in 1Q20), representing 23% of full year of FY21 sales target of RM1.2bn. The main sales contributors were Residensi AVA in Kiara Bay, followed by Residensi Allevia in Mont'Kiara as well as Senadi Hills and Estuari Gardens in Iskandar Puteri. It is worth noting that UEMS’s inventories has been lowered by 8% mainly contributed by the sales of Estuari Gardens in Iskandar Puteri (FY20 inventories also saw decrease by 13% thanks to the sales from this development). UEMS’s Melbourne projects (Aurora Melbourne Central & Conservatory Central) are fully sold with a total of AUD43m pending settlement (to fully settle by the end of 2021). RM243m worth of projects have been launched to date largely from a new high-rise residential development on a 19-acre land in Equine Park, Seri Kembangan (identified as KAIA Heights), which aims to cater to the mid-market segment.

Outlook. For FY21, we believe UEMS’s sales target of RM1.2bn (+9% YoY) is achievable backed by the healthy bookings of close to RM400m YTD (with c.50% conversion rate). Unbilled sales on the local front stood at RM1.8bn, representing a cover ratio of 2.6x towards the local property development revenue. Nonetheless, we remain cautious on the margins generated given the ongoing discounts given for its unsold units coupled with the ongoing losses from its Property Investment division.

Forecast. Unchanged as results were inline. Introduced FY23 forecast at RM107m.

Maintain HOLD with a slightly higher TP of RM0.49 (from RM0.48) as we recalibrated our earnings model following the release of FY20 annual report. Our TP is based on an unchanged discount at 75% to our estimated RNAV of RM1.94. Although we see some sales recovery from the group, we remain cautious on its margins (as earlier elaborated) and ongoing losses its Property Investment division.

Source: Hong Leong Investment Bank Research - 25 May 2021