• Maintain BUY and MYR1.60 TP, 61% upside. UEM Sunrise’s 2Q24 earnings missed expectations. We expect earnings to come in stronger in 2H as the company ramps up launches, and more non-core land and asset sales may be recognised in 2H24. 1H24 property sales reached MYR502m, on track to meet full-year target of MYR1bn. We continue to like UEMS for its strategic landbank in Iskandar Malaysia, which may significantly capture the opportunities that the Johor-Singapore Special Economic Zone may bring about.

• 2Q24 results. Despite the sequential growth in UEMS’ topline, overall billings remained weak as many projects were still at the early stages of construction. These include Residensi ZIG, The Connaught One, The Minh and Serene Heights. Meanwhile, EBIT during the quarter was boosted by the completion of the disposal of a 40% equity stake in a subsidiary to KLK Land for MYR368.2m, which resulted in a net gain of about MYR32m. As such, EBIT margin expanded to 28% vs 14% in the previous quarter. Net gearing eased to 0.43x from 0.47x in 1Q24.

• Better sales in 2Q24. 2Q24 property sales were higher at MYR269.8m compared to MYR232.6m in 1Q24. Sales were mainly contributed by The Minh, The Connaught One, Residensi ZIG and Senadi Hills. Take-up rate for Residensi ZIG, The Connaught One and The Minh improved to 19%, 42% and 58% from 13%, 37% and 50% in the last quarter.

• Expect stronger sales in 2H24. Bulk of the planned launches will be rolled out in 2H24 after a relatively quiet 1H. About MYR430m worth of projects have been launched in July and August. All non-bumiputra units in Aspira LakeHomes 4 & 6 (GDV: MYR108m) – launched in July – were fully sold within three days. The strong demand for properties reaffirms our positive view on the Johor property market. Other pipeline projects in the southern region include shop lots DiReka Square (GDV: MYR165m), as well as landed homes in Aspira Hills (GDV: MYR266m) and Estuari (GDV: MYR188m).

• Forecasts. We maintain our earnings forecasts as we expect 2H24 earnings to be much stronger driven by more new launches and some non-core land and retail asset disposals (potentially amounting to MYR250-300m depending on the fulfilment of certain conditions precedent). The disposal of 11.7-ha of land in East Ledang for MYR144.9m (estimated gain of MYR20m) may also be concluded by year end. Unbilled sales rose to MYR2.72bn from MYR2.61bn as at 1Q24.

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

Source: RHB Research - 23 Aug 2024