1QFY22 CNP of RM19m is considered within our FY22E loss estimate of RM45m as we expect the group to slide into losses in the subsequent quarters due to its stubbornly high overhead and financing costs. 1QFY22 sales of RM110m came below our/management’s RM1.3b/RM1.5b target. We foresee management holding back on their RM3.3b planned launches given the challenging market. Despite the lacklustre outlook, we keep OP with an unchanged TP of RM0.40 as we deem the current share price a value buy (at FY22E PBV of 0.25x). Our investment thesis stemmed from its internally-led initiatives to gradually improve earnings. However, if all these initiatives still fail to reinvigorate earnings, we believe external intervention in the form of M&A could re-emerge in the medium term given current appealing valuations.

Deemed within expectations. While 1QFY22 CNP seems strong at RM19m against our anticipated full-year loss of RM45m, we note that this is partially due to the land sale gains of RM18m (on revenue of RM32m from two pocket lands: Seputeh and 68 Avenue). Therefore, we deem 1QFY22 earnings to be within our full-year loss estimate as we believe operating contributions for the rest of the year will not be sufficient to cover the high overheads and financing costs of the group. As we anticipate the group to slide into losses for the subsequent quarters (barring any sizeable land sale gains), we deem 1QFY22 earnings below consensus profit expectations of RM37m. No dividends as expected.

Underwhelming sales performance. 1QFY22 reported sales of RM110m (backed by 1QFY22 launches of RM74m), are below our/management’s RM1.3b/RM1.5b target. Given the underperformance, we slash our sales target to RM800m (from RM1.3b). While management has stuck to their RM3.3b planned launches with the intention to drive sales, we believe the existing soft market will likely thwart such plans. Should they still follow through with the launches, we foresee major cash burns ahead without the accompanying take-ups. Unbilled sales stood at RM2.2b.

Highlights. QoQ, 1QFY22 CNP of RM19m swung back to the black from higher GP, attributable to land sale gains as mentioned above coupled with lower operating expenses (-58%). Note that UEMS typically have a seasonally high operating expense during 4Q. YoY, 1QFY22 improved against 1QFY21 CNL of RM6.2m mainly due to stronger revenue (+24%) which lifted GP (+24%).

Updates. UEMS is awaiting MRT Corp’s compulsory acquisition of their Taman Pertama land (purchased back in Aug 2020 for RM170m). Management guides that this land sale should be completed by year-end. We do not anticipate substantial gains from this land sale as it was only acquired two years ago.

After slashing our FY22E sales assumption for the group to RM800m, our FY22-23E loss estimates are widened to RM46m/RMRM30m (from RM45m/RM8m).

Maintain OP with an unchanged TP of RM0.400 on 0.30x FY22E PBV. Our OP angle comes from UEM’s internal improvements, more land/non-core asset sales, and faster turnaround of projects which would eventually bring a turnaround to earnings. However, if all of these internally-led initiatives still fail to reinvigorate earnings, external intervention in the form of M&A would likely re-emerge in the medium-term given the appealing current market valuation. Note that our angle is highly reliant on event-driven catalyst.

*CNP excludes unrealized FOREX losses/gains, gain/loss on disposal of non-property assets, FV adjustments, inventory impairments,

Source: Kenanga Research - 26 May 2022