1QFY21 CNP of RM37m came below expectations due to our overly bullish recovery projections coupled with weaker-than-expected sales and hospitality contributions. We foresee earnings to remain subdued for the subsequent quarters until the new planned launches of RM1.05b in 4QFY21 goes into more advanced construction stage in late FY22. Cut FY21/22E earnings by 47%/40% but keep our MP call and TP of RM1.76 after rolling valuation base year forward.

Below expectations. 1QFY21 CNP of RM37m (-37% QoQ; -71% YoY) came below our and consensus expectations, accounting for 13% and 15% of respective full-year estimates. Besides our overly bullish recovery projections, the disappointment stemmed from: (i) weaker- than-expected sales of RM81m vs. our target of RM480m, and (ii) slower-than-expected recovery from its hospitality division. No dividend as expected as the group only declares dividends in its fourth quarter.

Results’ highlights. YoY, 1QFY21 CNP plunged 71% mainly due to: (i) lower revenue (-63%) as a result of the less ongoing projects from the absence of launches in FY20 and (ii) lower other income (-34%). Other income came off due to lower rental income since the disposal of UOA Corp Tower (in 3QFY20) and weaker contributions from its hospitality division impacted by Covid-19. QoQ, 1QFY21 CNP declined 37% on lower revenue (-28%) due to the slower construction progress bogged down by MCO 2.0 coupled with lower unbilled sales carried forward at the start of the quarter due to lower ongoing jobs.

Remainder of FY21 to remain weak. Subsequent quarters top-line and consequently earnings are expected to remain subdued due to: (i) the dwindling unbilled sales of RM255m (as of 1QFY21; <1x cover), (ii) absence of new launches, and (iii) the slower sales of ongoing projects such as Aster Green, South Link, and Good Wood.

That said, earnings (in the form of higher margins) will be partially supported by cost write-backs upon construction completion of South Link (in 2Q21) and Good Wood (in 4Q21) as Uoadev typically budgets a higher initial costs for their projects at the start – allowing them to recognise un-utilised budgeted costs as profits once the project ends.

New planned launches of RM1.05b in 4QFY21 will only have greater earnings impact starting late-FY22 once construction enters into more advanced stage. These launches include: (i) Desa 3 landed properties (GDV of RM18m), (ii) Laurel Residence at Bangsar South (GDV of RM550m), and (iii) Sri Petaling Ph2 (GDV of RM480m; located beside Aster Green). In view of the later launches, we reduce our FY21E sales to RM350m (from RM480m). We think these products which are generally priced <RM500k/unit in the Klang Valley with proven sales demand should take off well.

Hospitality contributions will remain weak. Meanwhile, with Covid- 19 cases still elevated and the stricter lockdowns currently in place, contributions from its hospitality division which comprise hotels, event space and conference centres will now take longer to recover.

Slash FY21/22E CNP by 47%/40% to RM150m/RM183m on lower FY21E/22E sales of RM350m/RM600m and lowered hospitality income assumptions.

Maintain MARKET PERFORM on unchanged TP of RM1.76 pegged to 0.7x PBV on rolled-forward valuation base year of FY22E. Due to the overall uncertainties, the group continues to remain cautious, compromising short-term earnings by holding out on launches backed by their high cash reserves of RM1.95b (or RM0.92/share).

Source: Kenanga Research - 27 May 2021