UEMS’s 1HFY22 core net loss was within our expectations but surprised the market to the downside. It has set itself an aggressive launch target in 2H to drive sales and meet its internal RM1.5b full-year sales target. We are concerned over a potential crunch in its cash flow if the take-up is weak. Maintain our forecasts, TP of RM0.32 based on an 80% discount to its RNAV and MARKET PERFORM call.

Within ours but below consensus. 1HFY22 core net loss (CNL) of RM7.5m (after adjusting for RM43.5m land sale gains and RM3.1m FX gains) was within our forecast of a RM46m net loss for the full-year but missed consensus estimates of a full year net profit of RM34m.

Despite 1HFY22 revenue improving 56%, core net loss only narrowed marginally YoY as there were recognition of deferred tax assets (i.e. positive tax) in the previous year.

Outlook. 1HFY22 reported sales of RM439m (backed by YTD launches of RM100m) is within our RM0.8b target but trails company’s internal target of RM1.5b. Nonetheless, the company has stuck to their sales target for the year with planned launches worth RM2.0b-2.6b (reduced from RM3.3b) to drive sales and compensate the current shortfall. Amidst the current soft market, we opined that the group’s aggressive launch plans might not be ideal as they stand to face cash burns in the immediate future if the take-up rates are low. As of June-22, unbilled sales stood at RM2.28b.

Maintain our forecasts, TP of RM0.32 based on an 80% discount to its RNAV. The 80% discount (vs. 60-65% of peers) is to reflect the weak realisability of its GDV given that its land bank is largely located in the southern region that take a longer time to manetise. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5). Maintain MARKET PERFORM.

Risks to our call include: (i) strong recovery in the property sector; (ii) a decline in mortgage rates boosting affordability; and (iii) construction costs stabilise/decline.

Source: Kenanga Research - 25 Aug 2022