UEMS reported narrower 9M21 core LATMI of -RM59.5m (from 9M20 core LATMI of -RM86.5m). We deem the results to be below expectations (HLIB’s full year forecast stands at -RM13.3m and consensus at -RM15.5m) as we expect 4Q to be a loss making one due to lower progressive billings recognition (majority of projects are at the early stages of construction progress). 9M21 sales of RM915.3m were achieved representing 76% of full year target of RM1.2bn. We widened our FY21f losses forecast to-RM72.9m (from -RM13.3m) as we expect slower progressive billings but we maintain our FY22-23 forecast. Reiterate our HOLD recommendation with a lower TP of RM0.38 (RM0.40) pegged to a discount of 80% to our estimated RNAV of RM1.86. 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).

Below expectation. UEMS reported 3Q21 core LATMI of -RM44.8m (2Q21: -RM9.9m, 3Q20: -RM25.1m) which brought 9M21 core LATMI to -RM59.5m (9M20: -RM86.5m). We deem the results to be below expectations (HLIB’s full year forecast stands at -RM13.3m and consensus at -RM15.5m) as we are expecting 4Q to be a loss making one due to lower progressive billings recognition (majority of projects are at the early stages of construction progress).

QoQ. Core LATMI widened to -RM44.8m (from -RM9.9m) from lower progressive billings recognition following longer number of days of lockdown measures.

YoY. Despite flattish revenue (-2%), core LATMI widened to -RM44.8m (from -RM25.1m) due to low margin products.

YTD. UEMS chalked in a narrower losses of -RM59.5m (from -RM86.5m) on the back of higher sales and progressive billings recognition as MCO3.0 and NRP Phases were less restrictive compared to MCO1.0.

Sales and launches. Sales of RM208.2m were achieved in 3Q21, which brought 9M21 sales to RM915.3m (76% of RM1.2bn target) mainly from Residensi AVA (83% sold), Residensi Allevia (37% sold), Estuari Gardens (76% sold), Senadi Hills (81% sold) and Serene Heights (89% sold). Unbilled sales increased by 10% QoQ to RM2.2bn (2.1x cover ratio). RM550m 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. Launch of the newly acquired pocket land Taman Pertama (GDV of RM1.2bn) is deferred to 2022 due to authority delays (supposed to be launched by end of the year). With regards to bookings, management shared that it currently stands at RM250m, hence they are confident of achieving its sales target of RM1.2bn.

Outlook. The worst is not over yet for UEMS as we understand that the group will still register losses in 4Q because majority of projects are at the early stages of construction progress. We are expecting an improved showing next year from better progress completion in-line with higher productivity.

Forecast. We widened our FY21f losses forecast to -RM72.9m (from -RM13.3m) as we expect slower progressive billings.

Maintain our FY22-23 forecast. Maintain HOLD with a lower TP of RM0.38 (RM0.40) pegged to a discount of 80% to our estimated RNAV of RM1.86. 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).

Source: Hong Leong Investment Bank Research - 25 Nov 2021