1HFY21 CNL of RM11.5m came within our expectations but below consensus as the FMCO lockdown impact was likely worse-than-expected. 1HFY21 sales of RM707m came in broadly within our/management’s RM1.0b/RM1.2b sales target. Given the pandemic uncertainties, we believe UEMS will likely scale back their RM1.2b launch target for the year. Keep earnings, MP call and TP of RM0.40 based on 0.3x FY22E PBV.

Within our expectation but below consensus’. 2QFY21 core net loss (CNL) of RM5.4m dragged 1HFY21 CNL further into the red to RM11.5m – within our CNL projection of RM33m but below consensus’ profit forecast of RM48m. The underperformance against consensus is likely due to the FMCO impact (starting June 2021) hitting UEMS harder than expected. No dividends as expected.

2QFY21 sales of RM434m lifted 1HFY21 sales to RM707m – broadly within our/management’s sales target of RM1.0b/RM1.2b. This quarter’s commendable sales came from Residensi Ava (Kepong, KL) which clocked in strong sales of RM203m attributable to: (i) marginal price discounts, and (ii) management’s effort to differentiate Residensi Ava as a higher-end development compared to nearby competing development - M Luna which has a lower price point.

Launches could be pushed back. YTD, UEMS has launched RM300m worth of projects against their full-year target of RM1.2b. Given the uncertainties arising from the pandemic, management remains cautious and may consider deferring some launches. We opined that the launches at Iskandar Johor and Tower B of Kaia Heights would most likely be deferred (refer back table).

Results’ highlights. QoQ, 2QFY21 CNL of RM5.4m improved marginally against 1QFY21 CNL of RM6.2m mainly because of the positive tax income of RM19.4m versus a tax expense of RM3.5m in the previous quarter. Looking at the PBT line which removes the distortion effect from such wide tax variance, we note that all its operating segments came in weaker likely due to the impact from FMCO. YoY, 1HFY21 CNL of RM11.5m narrowed against 1HFY20 CNL of RM61m on the back of stronger revenue (+63%) due to the easier lockdown measures.

Vaccination drive. Currently, 50% of the group’s contractors are fully vaccinated and the group is targeting for 80% of them to be fully vaccinated by end-3QFY21. Consequently, this would then enable the group to operate at a 100% capacity on sites (based on latest guidelines).

Stakes are high with its three upcoming launches in Klang Valley. Moving forward, we believe UEMS’ earnings direction largely hinges on their three upcoming high-rise launches at Taman Pertama (GDV of RM1.3b), Section 13 (RM1.3b) and Taman Connaught (GDV RM1.0b). Besides needing to provide the right products at the right price, the group has to weather through a climate where there is an oversupply of high rises. Coupled with idiosyncratic issues attached to the Taman Pertama land – whereby it is located right beside the Cheras Christian Cemetery (50 acres), we think it will be an uphill battle for the group to drive sales and profits. As of 1HFY21, unbilled sales stood at RM2.0b (providing c.2.5x cover).

Post results, keep earnings estimates unchanged. Maintain MARKET PERFORM with an unchanged TP of RM0.400 on 0.30x FY22E PBV.

Source: Kenanga Research - 26 Aug 2021