2QFY20 CNL of RM57.4m dragged 1HFY20 to CNL of RM61m which disappointed due to slower-than-expected progress billings and sales, impacted by MCO. Slash FY20/21E earnings by 43%/8% but maintain OUTPERFORM with lowered TP of RM0.555 given cheap valuations and it being a beneficiary of a potential revival of the High Speed Rail project.

Below expectations. 2QFY20 core net loss (CNL) of RM57.4m dragged 1HFY20 CNL further to RM61m which disappointed ours and consensus full year profit estimates of RM107m and RM99m respectively. 1HFY20 sales of RM151m was also below our RM1.7b target. The negative deviation is due to lower-than-expected sales and progress recognition arising from the MCO disruption. We derived our 2QFY20 CNL after stripping of impairment of inventories worth RM39.5m. No dividends as expected.

QoQ, 2QFY20 bottom-line worsened to a CNL of RM57.4m (vs. CNL of RM3.5m in 1QFY20) as revenue plunged 43% on lower sales of RM54m (vs RM97m in 1QFY20) and slower progress billings on lower construction activities due to the MCO disruptions.

YoY, 1HFY20 CNL of RM61m deteriorated severely against 1HFY19 CNP of RM105.6m as revenue dropped 78% from lower unit handovers in Melbourne (as most were settled in FY19) coupled with slower domestic billings arising from the MCO impact and existing projects still at relatively earlier stages of construction.

Management lowering launch and sales targets for FY20E to RM1b each (vs previous targets of RM2b each). Management is also targeting to reduce Johor lands exposure and increase landbanks in Klang Valley and Australia. Unbilled sales of RM1.7b would provide visibility for the next 2 years

The worst is over for earnings. 1H20 reflected the worst of the MCO and we expect 2H20 profits to be better supported by (i) settlement of AUD125m Aurora apartments en-bloc sale to Scape Australia which is expected to fetch PAT contributions of c.RM68m and (ii) remainder settlement of AUD49m for Aurora and Conservatory be settled in the next 6-9 months to fetch PAT contributions of c.RM20m.

Reduce FY20/21E earnings by 43%/8% after: (i) lowering FY20/21E property sales target to RM1.0b/RM1.8b (from RM1.7b/RM1.9b) which encapsulates lower land sales to RM250m (from RM300m) for both FY20 and FY21, and (ii) deferring progress billings in FY20 to account for the MCO.

Maintain OUTPERFORM with a lower TP of RM0.555 (from RM0.565) on unchanged 0.37x FY21E PBV (-1.5SD). Our Outperform rating is premised on the fact that valuations are cheap coupled with the fact that the revival of HSR would benefit UEMS with 75% of their remaining land bank within Johor.

Source: Kenanga Research - 25 Aug 2020