Strong growth ahead amid healthy unbilled sales and robust projects. As of 3Q22, UEMS unbilled sales stood at RM2.2bn, which implies 1.1x cover ratio to its FY21 sales. We are positive on the group’s healthy take-up rate for its ongoing projects, where 7 out of 10 of its current projects registered >80% take-up rate. UEMS plans to launch c.RM2.2bn worth of projects in FY23, including THE MINH and THE CONNAUGHT ONE that were postponed in FY22 due to delay in obtaining authority approvals. With the foreign workers’ shortage issues started to ease, we expect stronger billings recognition to contribute positively to its FY23’s property segment.  

Meanwhile, UEMS’ earnings will also be boosted by the group’s ongoing effort to divest its non-core assets, which contributed RM245m to the group topline in 9M22. 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 being recognized going forward.

Steep discount to NTA. At RM0.27, UEMS is trading at a steep 79% discount against its NTA of RM1.33 (significantly wider than its peers' average of 55%). We reckon that the sector dynamics are on the mend, with headwinds such as housing overhang and labour shortage issues improving, while the recent pause in BNM’s interest rate hike (HLIB forecasting only one 25 bps rate increase for FY23) should also augur well for housing demand. Given the brightening prospects and undemanding valuation, we believe there will be a further up-leg for its share price.

Flag pattern breakout. After our successful call on UEMS in Nov 2022 (report), UEMS had retraced back to its immediate support near RM0.24-0.25 area and formed a flag pattern. On 25 Jan, the stock staged a breakout above the flag pattern, which indicates a start of a new up-leg. In view of higher high formation, we expect UEMS to advance toward RM0.30-0.33-0.36 levels. Cut lost at RM0.23

Source: Hong Leong Investment Bank Research - 27 Jan 2023