UEM Sunrise earnings visibility remains strong
UEM Sunrise Bhd (May 18, RM1.29)
Maintain hold with a higher target price (TP) of RM1.25: Excluding exceptional items of RM6.9 million (RM11.9 million disposal gains from land sales, RM10.5 million unrealised foreign exchange losses, RM3.1 million associate disposal gains, RM2.4 million gains on disposal of available-for-sale investments), UEM Sunrise Bhd reported its first quarter ended March 31, 2017 (1QFY17) core net profit of RM54.4 million (+2% quarter-on-quarter [q-o-q], +17-fold year-on-year [y-o-y]), comprising 27% of our estimates.
1QFY17 revenue increased by 110% y-o-y (-13% q-o-q), mainly contributed by property developments in the central and southern regions. The core net margin improved to 10% in 1QFY17 from 8.5% in 4QFY16 and 1.2% in 1QFY16. UEM Sunrise’s 1QFY17 property sales were only RM169.4 million (-74% q-o-q, -26% y-o-y). Management remains committed to its RM1.2 billion sales target in financial year 2017 (FY17), premised on its launch pipeline of RM1.7 billion in FY17, which will be underpinned by its Solaris 3 project worth RM735 million. Meanwhile, earnings visibility remains strong with RM3.7 billion unrecognised revenue (70% from overseas).
UEM Sunrise’s net gearing stood at 42% as at the end of 1QFY17. We see that its borrowings have been on an uptrend over the past few quarters, suggesting high upfront outlays for its Australian projects. Nevertheless, the completion of the disposal of its 4.1-acre (1.66ha) land in Richmond, Canada, in 3QFY17 will help to raise RM372 million cash proceeds. While we think the property market in Malaysia remains challenging, the worst looks to be over with signs of improved sentiment. We reiterate our “hold” recommendation with a higher TP of RM1.25. This is based on a narrower 65% discount to our revalued net asset valuation (compared to 70% previously) in view of improved sentiment in the property market. — AllianceDBS Research, May 18
This article first appeared in The Edge Financial Daily, on May 19, 2017.