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Maintain NEUTRAL and MYR0.38 TP, 15% upside. UEM Sunrise’s earnings were within expectations, largely held up by some land sales. Property sales reached only MYR110m, as a result of the expiry of the Home Ownership Campaign (HOC) in Dec 2021. Management guided that about MYR300m worth of land will be sold this year. We think this should help lift FY22F earnings, given the potential downside in the property development division as the industry is now facing labour shortage issues, which affects construction progress.
1Q22 results. 1Q22 earnings were largely supported by roughly MYR200m worth of land sales (including land parcels in SiLC, Seputeh and 68 Avenue). Profit margin from the land sales was not substantial, and hence, the property development division still contributed a decent margin during the quarter, despite the industry-wide labour shortage, and disruption in the supply chain. Net gearing remained unchanged, at 0.5x.
Property sales weakened in 1Q22. As expected, property sales were softer after the expiry of the HOC in Dec 2021. Sales only reached MYR110m in 1Q22, vs MYR544.7m in 4Q21. Key contributors include Estuari Gardens (MYR16.4m), Serene Heights Bangi (MYR18.8m), Kiara Kasih RUMAWIP (MYR14.6m). The sale for KAIA Heights in Equine has slowed down, with a take-up rate of only 40%, compared to 37% in the previous quarter. Meanwhile, unsold inventory has dropped slightly to MYR372m, vs MYR397m as at 4Q21.
Management maintained MYR1.5bn sales target. There could be some potential downside to management’s sales target given the current headwinds affecting property buyers’ sentiment, including heightening inflationary pressure as well as fluctuations in the MYR. UEMS still plans to roll out MYR3.3bn worth of projects this year. These include Taman Connaught Cheras (GDV: MYR742m for Phase 1), as well as the mixed development project in Collingwood Melbourne (GDV: MYR790m). Both projects are slated for launch in 2H22. Apart from these, the next two blocks of KAIA Heights and MK31 (indicative GDV: MYR740m) are also in the launching plan.
Revision in earnings. We raise our FY22 earnings forecasts by about 15%, as we expect the potential land sales may boost earnings in 2H22F. Unbilled sales fell slightly to MYR2.2bn vs MYR2.4bn in 4Q21.
ESG. Based on our in-house proprietary methodology, we derived an ESG score of 3.1 for UEMS. Our revised TP includes a 2% ESG premium, based on an unchanged 85% discount to our adjusted RNAV.
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