FY20 CNL of RM121m hugely disappointed due to weaker- than-expected progress recognition and higher losses from its property investment division. We think the year ahead could be challenging for UEMS given that bulk of their products are priced over RM500k which could be a tough sell in this climate. Reduce FY21E earnings by 41% after factoring for weaker sales target of RM1.0b (from RM1.8b). Maintain UP with a lower TP of RM0.40 (from RM0.43).

Huge disappointment. Despite registering a lumpy RM77m bottom-line contribution in 4QFY20 from the en-bloc settlement with Scape (in Australia), 4QFY20 still registered a core net loss (CNL) of RM28.1m*, dragging FY20 deeper into the red with CNL of RM120.8m – way below our earnings forecast of RM31m and consensus’ loss forecast of RM22m. The negative deviation stems from: (i) weaker-than-expected progress recognition which led to development losses as revenue failed to cover fixed costs, and (ii) higher-than-expected losses from its property investment division. No dividends as expected.

*We derive our core net loss of RM28.1m after reversing out one-off costs worth  RM107m from: (i) impairments worth RM87m from group level (RM57m) and JV  level (RM30m) and (ii) de-recognition of deferred tax asset worth RM20m. However, 4QFY20 sales of RM752m lifted FY20 sales to RM1.1b - within our/management’s RM1.0b target. Note that bulk of 4QFY20 sales were contributed by the land sales in SiLC Phase 3 to AME (not rated) worth RM434m.

Results’ highlights. QoQ, 4QFY20 CNL of RM28.1m marginally improved against 3QFY20 CNL of RM31.8m mainly due to the lumpy settlement recognition from Australia worth AUD125m (RM77m to bottom-line). Excluding this lumpy recognition, 4QFY20 actually performed the worst as all the other divisions incurred higher expenses. 

YoY, FY20 plunged to a CNL of RM121m (from a CNP of RM308m in FY19) largely due to the lockdowns arising from Covid-19 pandemic.

Outlook. For FY21, management has set a sales target of RM1.2b backed by RM1.2b worth of launches. That said, we prefer to be conservative and have set a lower FY21E sales assumption of RM1.0b (also reduced from our initial RM1.8b assumption) given that the bulk of its FY21 launches carry price tags of over RM500k/unit and are also not exactly located in urban prime areas (i.e. Mont Kiara). As of FY20, unbilled sales stood at RM1.9b (providing c.2x cover).

Reduce FY21E earnings by 41% on lower sales target of RM1.0b (from overly optimistic RM1.8b target earlier) and after imputing higher losses from property investment division to factor in a slower recovery. Meanwhile, we introduce FY22E earnings of RM70m based on sales target of RM0.9b.

Maintain UNDERPEFORM with a lower TP of RM0.400 (from  RM0.43) on unchanged 0.30x FY21E PBV (-2SD). We remain cautious over UEMS’ prospects as its product offerings mostly priced above RM500k could be challenging to sell amidst the weak climate. *CNP excludes unrealized FOREX losses/gains, gain/loss on disposal of non-property assets, FV adjustments, inventory impairments,

Source: Kenanga Research - 25 Mar 2021