UEM Sunrise Bhd: A Comprehensive Financial Analysis

Report Date: November 22, 2024

Broker: UOB Kay Hian

Introduction

UEM Sunrise Bhd, a flagship company of the UEM Group, is primarily focused on property development with a significant presence in the Iskandar Region, South Johor. This report delves into the financial performance and market positioning of UEM Sunrise, analyzing its recent results, strategic decisions, and future outlook.

Financial Performance Overview

UEM Sunrise has maintained a SELL recommendation with a target price of RM0.86, indicating a potential downside of -10.4% from the current share price of RM0.96. The company’s financial performance for the first nine months of 2024 (9M24) is somewhat aligned with expectations despite falling slightly short of its RM1 billion sales target. The company’s results accounted for only 65-67% of both UOB Kay Hian’s and consensus forecasts. However, expectations for a stronger fourth quarter (4Q24) are in place due to anticipated asset sales and improving billing processes.

Quarterly Results Analysis

3Q24 Results

For 3Q24, UEM Sunrise recorded a core net profit of RM30.8 million, showing a significant increase of 82% quarter-on-quarter (qoq) and 262% year-on-year (yoy). The revenue for the quarter was RM369.3 million, reflecting an 80% rise qoq and an 18% increase yoy. The 9M24 core net profit stood at RM55.9 million, which covers only 65-67% of the forecasts. Nonetheless, these results are considered in line with expectations, with a positive outlook for 4Q24 driven by asset monetization and improved billings.

Revenue and Earnings

The third quarter saw revenue and earnings rise by 80% and 82% qoq, respectively, largely due to higher land sales. Excluding these sales, revenue growth would still stand at 35%. However, on a yoy basis, revenue would have dropped by 5.7% without the land sales due to slower billing progress.

Sales and Market Position

In 3Q24, property sales were recorded at RM426 million, marking an increase of 57.9% qoq and 50.5% yoy, bringing 9M24 sales close to the RM1 billion target at RM928.4 million. The group launched RM808 million worth of products in 9M24, primarily from the Johor region, and achieved full take-up of international and Bumiputera lots.

Strategic Decisions and Market Dynamics

The management’s decision to revise the Gerbang Nusajaya township masterplan to include industrial components might be strategic for long-term positioning. However, this has delayed some residential launches, potentially missing out on strong demand in the Johor residential market. Although an update was expected by the end of 2024, progress has been limited, raising concerns about the company’s ability to capitalize on near-term revenue opportunities.

Valuation and Recommendation

UEM Sunrise’s stock is trading at a high valuation of 50-58x 2024-26F PE, which is significantly above its 10-year PE average of 27x. The recommendation remains SELL with a target price of RM0.86, despite the stock trading at a narrower RNAV discount of 60% compared to the five-year historical average of 70%.

Environmental, Social, and Governance (ESG) Initiatives

UEM Sunrise has partnered with GENTARI and PETRONAS Global Technical Solutions to pursue a shared sustainability agenda aimed at building a low carbon future by 2030. The company also invests in community involvement and CSR programs, with 33% of its board members being women, reflecting its commitment to governance and social responsibility.

Conclusion

UEM Sunrise’s financial performance in 2024 has been marked by strategic shifts and market dynamics. While the company is positioned for potential growth through asset monetization and launches, challenges remain in balancing long-term strategic goals with immediate revenue opportunities. Investors are advised to approach with caution, given the stock’s current valuation and the potential downside.