Limited downside? At RM0.20, UEMS is trading at an 85% discount against its NTA of RM1.33, which is significantly higher than its peers' average of 52%. Despite headwinds aplenty in the property sector amid (i) elevated raw material prices; (ii) interest rate up-cycle, and (iii) weak consumer spending power, the 37.5% and 12.1% YTD plunge in UEMS’s share price and FBM Property index seems to have reflected the negatives. Also, by discounting 85% of our estimated RNAV (RM1.97), HLIB has a TP of RM0.30 on UEMS, translating to 50.0% upside.

Land sales to support 2H22 earnings. We believe the group is heading in the right direction in strategizing its land bank portfolio through the sale of non -strategic lands while acquiring new parcel of lands for future developments. The recent disposal of non-core lands and in-kind settlement of new lands may point to further land sales to be recognized in 2H, and the higher margin from land disposals should help to lift earnings.

More launches in 2H22. With 1H22 new launches of RM100m making up only 3% of the group's full-year RM3.3bn target, UEMS is expected to ramp up more new launches in 2H22. Pipeline launches include the KAIA Heights Phase 2, Collingwood in Melbourne, and MK31 in Mont Kiara, with a total estimated GDV ranging from RM2bn- 2.6bn, which should offer support to FY23's new sales. Encouragingly, 2Q22 new sales has doubled compared to 1Q22 to RM328m, although the 1H22 new sales of RM439m represent only 29.3% of its full-year sales target of RM1.5bn. 2Q22 unbilled sales of RM2.28bn, implies 1.86x cover of FY21 revenue.

Position for a rebound. After plunging 47% from a 52-week high of RM0.38 to RM0.20 yesterday, UEMS is steeply oversold, and we expect the stock to start building a base near RM0.18-0.20 levels with expanding volume. A successful breakout above RM0.21 will spur the stock price back to RM0.23-0.25-0.27 levels. Cut lost at RM0.175.

Source: Hong Leong Investment Bank Research - 9 Nov 2022