KEY INVESTMENT HIGHLIGHTS

• 1QFY20 earnings missed expectations

• Slipped into the red

• 1QFY20 new property sales at RM97.4m

• Expanding landbank in Australia

• Earnings estimates revised downwards

• Maintain BUY with a revised TP of RM0.54

1QFY20 earnings missed expectations. UEM Sunrise 1QFY20 earnings missed expectations as it recorded core net loss of RM3.5m. The negative deviation could be attributed to the weaker than expected progress billing in 1QFY20 as a result of Movement Control Order (MCO). Note that we have excluded forex loss of RM18.4m in our core net income calculations.

Slipped into the red. UEM Sunrise slipped into the red in 1QFY20 after recording core net loss of RM3.5m against net profit of RM31.5m in 1QFY19 as earnings were dragged by MCO which was enforced since 18th March 2020. The enforcement of MCO has resulted in lower progress billing in March. Besides, the lower earnings were also due to lower contribution from oversea projects and lower earnings recognition from ongoing projects as the projects are at the early stages of construction progress. Meanwhile, unbilled sales were unchanged at RM1.8b in 1QFY20.

1QFY20 new property sales at RM97.4m. UEM Sunrise recorded property sales of RM97.4m in 1QFY20, sharply lower than new sales of RM410m in 4QFY19 due to absence of new project launches and enforcement of MCO which has led to closure of its sales gallery. New sales achieved in 1QFY20 were below management expectations, making up only 5% of management sales target of RM2b. Meanwhile, management is in the midst of reviewing their sales target. Nevertheless, we forecast UEM Sunrise to register new sales of around RM1b in FY20. New sales in 2HFY20 are expected to be supported by reintroduction of House Ownership Campaign (HOC).

Expanding landbank in Australia. On a separate note, UEM Sunrise announced that it has signed a contract with Jowett Properties Pty Ltd to acquire 1.33 acres of freehold land located at 21-53 Hoddle Street, Collingwood in Melbourne for AUD43m. The land is planned for a mixed development with an estimated GDV of AUD250m. The deal is expected to complete in 1Q2021 while project launches are expected to be in 2022.

Maintain BUY with a revised TP of RM0.54. We revise our FY20/21F earnings forecasts by -51.6%/-37.2% as we assume lower new sales target for FY20 and lower progress billing. Correspondingly, our TP for UEM Sunrise is revised downward to RM0.54 from RM0.91 as we widen our RNAV discount to 75% from 58%. Despite the earnings disappointment and weaker new sales outlook, we see that valuation of UEM Sunrise is extremely attractive as it is trading at 69% discount to its latest NTA of RM1.45 per share. We think the attractive valuation presents opportunity for investors to accumulate UEM Sunrise and ride on earnings recovery in FY21. Hence, we maintain our BUY call on UEM Sunrise.

Source: MIDF Research - 22 Jun 2020