• Maintain BUY and MYR1.60 TP, 40% upside. UEM Sunrise’s 1Q24 earnings are below expectations. Revenue for the quarter declined, as land sales decreased and the number of new launches held was minimal. We expect earnings to strengthen ahead, as more projects will be rolled out, while the number of non-core land disposals should increase. We believe some strategic deals may also materialise in the coming weeks. Despite a temporary blip in earnings, we continue to view UEMS as a good proxy for Iskandar Malaysia’s multi-year growth story.

• 1Q24 results. Development revenue was mainly underpinned by Residensi Allevia and KAIA Heights. However, overall revenue softened due to the lower amount of land sales (MYR48m vs MYR153m in 4Q23) as well as the number of launches being minimal during the quarter. As such, the company’s EBIT margin contracted to 14%, from 23% in the previous quarter. Net gearing inched up slightly to 0.47x, from 0.45x in FY23.

• Decent sales in 1Q24. 1Q24 property sales totalled MYR232.6m, vs MYR367m in 4Q23. Sales were mainly contributed by ongoing projects (65% from the Klang Valley, and 35% from the southern region) as there were no new launches in 1Q24. The take-up rates for The Minh and The Connaught One rose to 40% (from 46% in 4Q23) and 37% (from 32% in 4Q23).

• Major launches in 2Q-4Q. About MYR800m worth of new projects will be rolled out this year from 2Q onwards. Launches in the pipeline are mainly from the southern region, including shop lots at DiReka Square (GDV: MYR165m), and landed homes in Aspira Hills (GDV: MYR266m) and Estuari (GDV: MYR188m). In the Klang Valley, new launches will only be landed homes in Serene Heights and Symphony Hills.

• Expect more strategic partnerships to come. Management guided that UEMS’ participation in the renewable energy industrial park will be different from the industrial JV projects in the past, and investors should also expect more catalytic partnerships to come in the coming weeks. We think there will be more plans to kickstart more industrial developments at Gerbang Nusajaya, going forward.

• Forecasts. We maintain our earnings forecasts as we expect new launches and some non-core land disposals (potentially amounting to MYR1bn) as well as land monetisation via strategic partnerships to lift earnings in 2H. Unbilled sales remained relatively unchanged at MYR2.61bn vs MYR2.65bn in 4Q23.

• Maintain TP. Our TP is based on a 25% discount to RNAV with a 2% ESG discount applied, given our ESG score of 2.9 out of 4 for the company.

Source: RHB Research - 29 May 2024