Long-term bullish outlook for UEM Sunrise

PETALING JAYA: Analysts remain bullish on UEM Sunrise Bhd’s long-term outlook although some have lowered their earnings estimate on the property developer.

RHB Research sees an earnings recovery for the company in the second half of this year on the back of a potential pick-up in billings and property sales boosted by the government’s Home Ownership Campaign (HOC) 2020.

“In view of the weak first quarter (Q1) earnings, we cut our FY20-22 earnings forecast by 8%-15%. While we expect second-quarter earnings to also be disappointing, the second half of the year should see some recovery as billings pick up,” it said in a report yesterday.

Meanwhile, CGS-CIMB Research maintained an “add” call on UEM Sunrise shares with a target price of 59 sen, which is 0.4 times of its FY21 price-to-book value (P/BV).

“We remain positive on UEM Sunrise due to its attractive valuation (0.3 times FY21 P/BV, lower than its peer average of 0.4 times) and improving balance sheet with the completion of the Australia projects and financing having been fully settled, despite weaker earnings in FY20F due to lumpy revenue recognition of its Australia projects in FY19,” said CGS-CIMB Research.

Last week, UEM Sunrise said its earlier sales and gross development value (GDV) targets of Rm2bil for this year could be impacted by the uncertainties in the economy.

The group posted a net loss of Rm21.94mil for the first quarter ended March 31, 2020, from a net profit of Rm30.1mil in the same period last year.

It posted lower revenue of Rm195.85mil compared with Rm419.26mil a year ago as the ongoing construction works were at the early stages of progress.

CGS-CIMB said UEM Sunrise key projects lined up for the second half of this year include Allevia Mont’ Kiara (GDV Rm542mil) and Senadi Hills Iskandar Puteri (GDV Rm399mil).

“We view the Rm2bil new sales target as too ambitious despite the positive measures announced under the Short-term Economic Recovery Plan amid an expected gross domestic product contraction and higher unemployment,” it said

Meanwhile, UOB Kay Hian Research said that UEM Sunrise has unbilled sales to sustain earnings for next 1-1.5 years.

The group’s unbilled sales as of end-1q20 stood at Rm1.8bil.

“Despite the weak sentiment in the property market, we reckon the announced incentives for the property sector like the reintroduction of HOC, removal of real property gain tax and loan to value of 70% would be able to generate new sales for UEM Sunrise’s property sales.

“Also, UEM Sunrise guided that it will be reviewing the pricing of its property projects to ensure the pricing of its products is competitive with surrounding competitors,” UOB Kay Hian said.

The research house foresees UEM Sunrise’s second-quarter results to soften due to the absence of domestic billings amid the movement control order.

Nonetheless, it expects gradual recovery in the second half of the year onward as UEM Sunrise is expected to gradually recognise the progress billings of its unbilled sales, deliver its Australian property (unbilled: Rm500mil) and gradual improvement property sales boosted by the HOC 2020.

“We remain positive on UEM Sunrise due to its attractive valuation and improving balance sheet...” CGS-CIMB Research