UEMS reported narrower 1H21 core LATMI of -RM14.7m (1H20: -RM61.4m), which was below our and consensus expectations. 1H21 sales of RM707.1m was achieved representing 58.9% of full year of FY21. We now forecast FY21f to register losses of -RM13.3m (from profit of +RM42.1m) as we expect interruptions in construction work progress to adversely affects sales and progressive billings coupled lower contribution from property investment segments. Maintain our HOLD recommendation with unchanged TP of RM0.40 pegged to a discount of 80% to our estimated RNAV of RM1.97.

Below expectation. UEMS reported 2Q21 core LATMI of -RM9.9m (1Q21: -RM4.8m, 2Q20: -RM57.7m) which brought 1H21 core LATMI to -RM14.7m (1H20: -RM61.4m). We deem the results to be below expectations (HLIB’s full year profit forecast stands at +RM42.1m and consensus at +RM48.1m) largely due to lower progressive billings recognition as well as lower contribution from property investment segment as a results from disruption in operation attributable to MCO3.0 and Phase 1.

QoQ. Despite flattish topline (-1.4%), core LATMI posted wider losses of -RM9.9m (from -RM4.8m) owing to higher COGS (+4.8%), lower other income (-14.5%) as well as lower contribution of share from JVs and associates.

YoY/YTD. UEMS chalked in narrower losses on the back of higher sales and progressive billings recognition as MCO3.0 and NRP Phase 1 were less restrictive compared to MCO1.0.

Sales and launches. Sales of RM435m was achieved in 2Q21 (vs RM53.5m achieved in 2Q20), which brought 1H21 sales to RM707.1m (representing 58.9% of full year of FY21 sales target of RM1.2bn) mainly from Residensi AVA, Residensi Allevia, Estuari Gardens and Senadi Hills. It is worth noting that UEMS’s inventories has reduced by 14% mainly contributed by the sales of Estuari Gardens in Iskandar Puteri, which as at to-date has a take up rate of 75%. Unbilled sales have increased by 4% QoQ to RM2bn (1.9x cover ratio). RM300m 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), followed by new phases in Serene Heights Bangi. The newly acquired pocket land Taman Pertama (GDV of RM1.2bn) is targeted to be launched by end of the year (with 1st phase GDV launch of c.RM350m). With regards to bookings, management shared that it currently stands at RM207m, where 70% are from central region and the remaining from southern region.

Outlook. Although we see some sales recovery from the group, we believe progressive billings will be further affected in 3Q from Phase 1 restrictions coupled with the concern regarding ongoing losses from its property investment division. On a brighter note, management targets to achieve 80% vaccination by end of 3Q and should be able to ramp up its construction activities in tandem with the higher workforce vaccination (in line with the recent reopening measures).

Forecast. We now forecast FY21f to register losses of -RM13.3m (from profit of +RM42.1m) as we expect interruptions in construction work progress to adversely affects sales and progressive billings coupled lower contribution from property investment segments. Maintain our FY22-23 forecast.

Maintain HOLD with unchanged TP of RM0.40 pegged to a discount of 80% to our estimated RNAV of RM1.97. We see a lack of near-term catalyst given the subdued sentiment for property outlook in Johor (in which UEMS has the biggest landbank exposure) as well as the prolonged lockdown and high Covid-19 cases.

Source: Hong Leong Investment Bank Research - 26 Aug 2021