KUALA LUMPUR (June 22): Analysts have turned mixed on prospects for residential property developer UEM Sunrise Bhd, following a swing to a loss for its latest financial quarter.

On one hand, analysts have turned cautious, pointing to limited upside for the financial year ending Dec 31, 2020 (FY20), considering weak earnings prospects for the year as the company is currently digesting a slew of projects launched in the second half of 2019 (2H19).

On the other hand, cheap valuation and an improving balance sheet have kept the counter on analysts’ radar as well.

In a research note, AmBank Research downgraded UEM Sunrise to "hold" from "buy", with an unchanged fair value of 48 sen based on a 60% discount on its revalued net asset value (RNAV). 

“UEM Sunrise’s share price has gained more than 10% since our previous update and the stock currently offers limited upside, hence we downgrade it to ‘hold’,” said AmBank Research. 

“Meanwhile, as the majority of the company’s projects were launched in 2HFY19, the early stages of construction progress led to lower revenue recognition,” it added. 

“We cut our FY20 net profit forecast by 46% to RM84.5 million to reflect the timing of recognition as a result of the movement control order (MCO) and the Covid-19 pandemic,” the research house added. 

However, the research house said UEM Sunrise’s outlook remains stable, considering its RM1.81 billion unbilled sales. 

“The completion of the Australian projects also reduced the company’s net gearing to 35% as at 1QFY20 from 54% [in 1QFY19],” the research house said.

Separately, CGS-CIMB Research maintained “add” on the counter with a target price of 59 sen or four times its FY21 price-to-book value (P/BV), as opposed to the shares trading at three times P/BV currently.

"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 (due to completion of the Australia projects and financing having been fully settled),” said CGS-CIMB Research.

This was despite weaker earnings for FY20 due to lumpy revenue recognition of its Australia projects in FY19, it said.

UEM Sunrise last week cautioned that its earlier sales and gross development value (GDV) targets of RM2 billion for FY20 may be impacted by economic uncertainties. 

This follows a net loss of RM21.94 million for 1QFY20 from a profit of RM30.1 million on foreign exchange losses on the back of an over 50% decline in revenue to RM195.85 million from RM419.26 million for 1QFY19.

Among UEM Sunrise’s key projects lined up for.2HFY20 are the RM542 million GDV Allevia Mont Kiara and the RM399 million GDV Senadi Hills Iskandar Puteri.

In Australia, the group expects to complete an acquisition of a 1.3-acre (0.53ha) freehold development site in Melbourne for A$43 million (RM125.76 million) in 1Q21, and expects to launch a A$250 million GDV project by end-2021.

At the time of writing, UEM Sunrise was trading unchanged at 45 sen, valuing the group at RM2.04 billion.