KEY INVESTMENT HIGHLIGHTS

• 1HFY20 earnings below expectations
• Earnings recovery in 2HFY20
• 1HFY20 new property sales at RM150.9m
• Earnings estimates revised downwards
• Maintain BUY with a revised TP of RM0.54

1HFY20 earnings below expectations. UEM Sunrise recorded core net loss of -RM61m in 1HFY20 which was below our and consensus expectations. The negative deviation could be attributed to the greater than expected adverse impact from Movement Control Order (MCO) on progress billing of property projects. Note that we have excluded forex gain and inventories write down in our core net income calculations.

Earnings recovery in 2HFY20. 2QFY20 core net loss widened to - RM57.4m from -RM3.5m in 1QFY20 as construction works were stopped during MCO. That brought cumulative core net loss to -RM61m against net profit of RM107m in 1HFY19. The weaker earnings in 1HFY20 were also dragged by low property sales and rental waivers to tenants. Meanwhile, unbilled sales eased to RM1.7b in 2QFY20 from RM1.8b in 1QFY20. Looking ahead, earnings are expected to recover in 2HFY20 as construction works have resumed and progress billing should pick up.

1HFY20 new property sales at RM150.9m. UEM Sunrise chalked up minimal new property sales of RM53.5m in 2QFY20 against new property sales of RM97.4m in 1QFY20 as new sales were affected by MCO in 2QFY20. That brought cumulative new sales to RM150.9m in 1HFY20 which were below management sales target of RM2b but within our sales target of RM1b. Meanwhile, management is revising downward its sales target to RM1b (including land sales) and is also targeting to launch projects with total GDV of RM1b in FY20. Sales momentum is expected to be stronger in 2HFY20, driven by PENJANA incentives namely HOC 2020 and lifting of the 70% margin of financing limit for the third housing loan onwards.

Maintain BUY with a revised TP of RM0.54. We revise our FY20/21F earnings forecasts by -57%/-12.1% as we assume lower progress billing. Correspondingly, our TP for UEM Sunrise is revised downward to RM0.54 from RM0.58 as we widen our RNAV discount to 78% from 75%. We maintain BUY on UEM Sunrise as we expect earnings to return into the black in 2HFY20. Besides, valuation is attractive as it is trading at 71% discount to latest NTA of RM1.42 per share.

Source: MIDF Research - 25 Aug 2020