• Maintain NEUTRAL with lower TP of MYR0.33 from MYR0.35, 10% upside. UEM Sunrise’s earnings beat expectations, as land disposals during the quarter yielded higher profit margins. 1H property sales achieved MYR439m vs management’s full-year target of MYR1.5bn. The recent disposal of non-core land and in-kind settlement of new land may point to further land sales to be recognised in 2H, and the higher margin from land disposals should help to lift earnings going forward.

• 2Q22 results. Although land sales were lower QoQ, earnings were largely driven by the better margin from land disposals during the quarter (Mersing and Iskandar Puteri land). As a result, EBIT margin was higher at 16% vs 14% in the previous quarter. Revenue for the property development segment remained stable, and it was mainly contributed by the ongoing projects in the Klang Valley and Johor. Net gearing remained relatively unchanged at 0.51x.

• Property sales picked up in 2Q22. Property sales achieved MYR329m vs MYR110m in 1Q22, bringing 1H sales to MYR439m. Key contributors include KAIA Heights (MYR63.4m), Estuari Gardens (MYR54.6m), Serene Heights Bangi (MYR48.8m), and Residensi AVA Kiara Bay (MYR37.5m). Take-up rate for KAIA Heights in Equine has picked up to 54% from only 40% in the previous quarter, while Residensi AVA is already 96% sold. Unsold inventory has fallen to MYR276m, from MYR372m in last quarter.

• Launching plan in 2H. UEMS maintained its MYR3.3bn launch target this year. Pipeline launches include Ph 2 of KAIA Heights, new phases in Serene Heights MK31 as well as Aspira Gardens and Senadi Hills. The Collingwood project in Melbourne (GDV: MYR790m) may also be launched by end 2022. However, the Taman Connaught project (GDV: MYR742m for Phase 1) is now deferred to next year.

• More disposals of non-core land to be recognised. We expect more land disposals to be recognised in the coming quarters, including the 107.8-acre land in Gerbang Nusajaya as part of an in-kind settlement for the new Semarak land as well as the MYR38m disposal of a 31-acre land in Durban.

• Revision in earnings. We raise our FY22 earnings forecasts by c.15%, given the better margin from land disposals. Unbilled sales inched up slightly to MYR2.3bn vs MYR2.2bn in 1Q22.

• ESG. We revise our ESG score for UEMS to 2.9 from 3.1 as we think the recent land deals at a relatively high price may draw some concerns. Our revised TP includes a 2% ESG discount, based on an unchanged 85% discount to RNAV.

Source: RHB Research - 25 Aug 2022