UEM Sunrise says no profit erosion from construction cost hike this year

KUALA LUMPUR (May 26): UEM Sunrise Bhd chief executive officer Sufian Abdullah said on Thursday that the hike in construction cost is not eroding the group's profitability for the financial year ended Dec 31, 2022 (FY22).

He said in a virtual briefing that the hike in construction cost is something that he has expected, and that it has no impact on the group's components this year.

"But we will know that moving forward for the next couple of years. There's going to be a long-term impact of cost increase," he added.

He also said that the group will monitor the construction cost closely, and will "fine-tune" the property prices instead of revising them.

"We have seen a considerable increase in terms of construction materials… Given the volatility of material prices, this is something that we are constantly looking at and something that we are constantly monitoring," he said.

Sufian also said the group is dealing with the construction cost hike through effective risk management, by allowing its business partners, suppliers, vendors and contractors to assume a considerable amount of risk.

"The focus that we are working on in terms of managing construction price hike, is rather than aiming for cost savings with cost-cutting exercise, [we] go forward with cost certainty, and that will mitigate the risk of fluctuations, over the course of construction," he said.

Meanwhile, Sufian expects the group to remain profitable in FY22, underpinned by unbilled sales of RM2.2 billion.

"For FY22, we will remain positive for the remainder of the year. We have ongoing projects that will be coming on stream and land sales. On top of that, our retail has returned to profitability, as compared to the last two years when we could not collect rent. All these things are helping us narrow the loss that we incurred last year and I think the profitability will be sustainable this year," he said.

The company also maintains its sales and gross development value (GDV) targets of RM1.5 billion and RM3.3 billion, respectively, for FY22.

It launched projects worth up to RM74 million in GDV in the first quarter ended March 31, 2022 (1QFY22).

The property firm announced on Wednesday that it returned to the black in 1QFY22 by achieving a net profit of RM19.02 million compared with a net loss of RM4.32 million a year ago, underpinned by higher gross profits, improvements in its share of results from associates and joint ventures, mainly from Nusajaya Tech Park and Horizon Hills in Iskandar Puteri, as well as higher foreign exchange gain.

Its revenue for the quarter also surged 64.81% to RM416.45 million from RM252.69 million a year ago, supported mainly by local property development activities and the sale of 19 industrial plots in phase 3 of the Southern Industrial and Logistics Clusters in Iskandar Puteri.

In a note on Thursday, CGS-CIMB analyst Ngo Siew Teng said that UEM Sunrise's 1QFY22 results were below expectations on lower-than-expected revenue recognised and margins; new property sales were lower year-on-year at RM110.1 million.

However, she opined that the firm should be on track to hit its FY22 new property sales target, given the more aggressive launches and ongoing monetisation of its inventory.

"New property sales will likely catch up following more aggressive launches of projects in the pipeline, which focus on more affordable products," she added.

While reiterating an "add" call for UEM Sunrise, she lowered its target price to 40 sen from 54 sen.

"We like UEM Sunrise given its undemanding valuation of less than 0.3 times of FY23 forecast price-to-book value, which is significantly lower than peers' 0.46 times; anticipated earnings recovery in FY22 to FY24 due to business normalisation and realignment of group strategy, and good environmental, social and governance disclosures and action plans," she said.

At 11.22am, UEM Sunrise shares rose one sen or 3.08% to 33.5 sen, valuing the group at RM1.64 billion. Year to date, the counter has risen 4.69%.

Edited by Joyce Goh

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