UEMS reported 4Q22 core PATAMI of RM11.8m, bringing FY22’s sum to RM74.5m (FY21: -RM119.7m). The results were below our and consensus expectations due to lower-than-expected sales and progress billings. Maintain forecasts and HOLD call with a higher TP of RM0.28 (from RM0.23) based on a lower discount of 85% (from 88%) to our estimated RNAV of RM1.89. Despite the weaker results this quarter, we are turning slightly more positive on the group given better visibility on launch pipeline, activation of its high value project as well as easing of labour shortage condition. The group’s net asset per share of RM1.34 should provide some downside support to its share price.

Below expectations. UEMS reported 4Q22 core PATAMI of RM11.8m (-51.6% QoQ; 4Q21: -RM59.6m), bringing FY22’s sum to RM74.5m (FY21: -RM119.7m). The results were below our (89.5%) and consensus (92.7%) expectations. The negative deviation was mainly due to lower-than-expected sales and progress billings. FY22 core PATAMI was arrived at after excluding net EIs of +RM6.1m mainly from forex gain of +RM5.9m.

Dividend. 0.5 sen, ex-date: 27 Apr 2023 (4Q21: none) FY22: 0.5sen (FY21: none).

QoQ. Revenue declined by -5.5% due to (i) lower sales; and (ii) lower progress billings due to fewer ongoing projects as Residensi Solaris Parq was completed in the current quarter. Core PATAMI declined by a larger magnitude of -51.6% due to higher tax expense of RM19.8m (+4.1x).

YoY. Revenue declined by -28.4% due to lower land sales. Current quarter recorded RM42m sale of industrial plots in phase 3 SiLC (vs. RM192m SPLY). Excluding this, revenue would have increased by +6%. Subsequently, core PATAMI improved to RM11.8m (from -RM59.6m SPLY) due to better margin from project cost savings likely from the completion of Residensi Solaris Parq.

FY22. Revenue increased by +24.4% mainly due to better site progress compared to previous year where construction was interrupted by Covid restrictions. Consequently, core PATAMI improved to RM80.5m (from -RM214m SPLY).

Sales and launches. UEMS recorded 4Q22 sales of RM187.5m (-36.9% QoQ; -65.6% YoY), bringing FY22’s sum to RM923.7m (-36.7% YoY), representing 61.6% of its full year sales target of RM1.5bn. The group did not launch any products in 4Q22. Its full year launch amounted to RM517m (-6% YoY), making up 15.7% of its RM3.3bn target. As at 4Q22, completed inventories stood at RM203m (-10.6% QoQ) while unbilled sales stood at RM1.8bn (-18.2% QoQ), representing a 1.22x cover of its FY22 revenue. For FY23, the group is setting sales target of RM1.5bn (+62.4% YoY) and launch target of RM2.5bn (+3.8x YoY). Its launch pipeline includes The Minh, Mont Kiara (GDV of RM947m, target launch: 1Q23) and The Connaught One, Cheras (GDV of RM743m, target launch: 2Q23).

Outlook. In the absence of land sale, the group may continue to see weakness in its 1Q23 earnings given it now has fewer ongoing projects (9 ongoing projects vs. 10 in previous quarter), while its completed inventories are also declining to support sales. Nonetheless, beyond 1Q23, earnings may pick up given (i) the launch of The Minh in 1Q23; and (ii) easing of labour shortage condition which will expedite site progress. We believe The Minh should be well received given that the project is located at the much sought-after address in Mont Kiara.

Forecast. Unchanged.

Maintain HOLD with a higher TP of RM0.28 (from RM0.23) based on a lower discount of 85% (from 88%) to our estimated RNAV of RM1.89. Despite the weaker results this quarter, we are turning slightly more positive on the group’s outlook given better visibility on launch pipeline, activation of its high value project as well as easing of labour shortage condition. The group’s net asset per share of RM1.34 should provide some downside support to its share price.

Source: Hong Leong Investment Bank Research - 24 Feb 2023