• Maintain NEUTRAL and MYR0.28 TP, 9% upside. UEM Sunrise’s 1Q23 earnings missed expectations, as it did not launch any new projects during the quarter. Meanwhile, progress billings remained slow, given the shortage of construction workers. Management’s MYR1.5bn sales target may seem a tall order in our view, as 1Q23 property sales amounted to just MYR168m, and pipeline launches will need to have at least a 55-60% take-up rate (each) in order to meet its target.

• 1Q23 results. The YoY and QoQ drop in 1Q23 revenue was mainly due to the lower land sales, as 2022 saw the disposal of a few parcels of land including the big parcel at Southern Industrial and Logistics Clusters. Meanwhile, its EBIT margin widened, due to higher margins for selected completed products in the central and southern region, as well as a contribution from the settlement of remaining units in Australia and the recognition of cost savings. UEMS’ net gearing was relatively unchanged at 0.47x, vs 0.48x in 4Q22. Unsold inventory fell further to MYR176m, from MYR203m in FY22.

• Weak sales in 1Q23. Property sales were at just MYR168m vs MYR188m in 4Q22. The low sales were largely due to the dearth of launches during the quarter. Despite the weak sales in 1Q23, management is keeping its MYR1.5bn sales target for the year, as The Minh at Mont’ Kiara (GDV: MYR979m), The Connaught One (GDV: MYR743m) and KMP7 Kiara Bay (GDV: MYR646m) – to be launched in May, June and 3Q23 – will be the key sales drivers. Management indicated that response for The Minh (ASP: MYR900-1,000 psf) has been rather encouraging, with 70% of units booked and 30% of these already converted into contractual sales.

• Potential land sales recognition to lift FY23 earnings. We understand that two land sales may be concluded this year. These are: 1,777 acres land in Tapah, and 67.7 acres in Nusajaya Tech Park, fetching a combined price of MYR161m.

• Forecasts. We maintain our FY23-25F earnings as UEMS’ net profit should pick up upon the launch of the few major projects in the pipeline. Unbilled sales dropped slightly to MYR1.7bn, from MYR1.8bn in 4Q22.

• Maintain TP. Our TP is based on an unchanged 85% discount to RNAV, and a 2% ESG discount, given our ESG score of 2.9 for the company.

• ESG framework update. As there is now greater focus on the E pillar due to critical climate change issues, we have tweaked our ESG weightage. Henceforth, we assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. Further details are in our 2 May thematic research note titled Envisioning a Better Future.

Source: RHB Research - 19 May 2023