UEM Sunrise Bhd - Why the one big lump of expenses?

21/4/2014 – Management of UEM Sunrise is optimistic that its financial performance for 2014 will surpass that of 2013, despite the challenging property market in Malaysia after the introduction of the cooling measures.

It expects to launch several phases of landed properties in East Ledang and in D’Estuary.

In the central region, it will continue to sell the remaining units in Residensi 22, Mont’Kiara following its sales launch in December.

It will also launch other landed developments like Serene Heights in Bangi and Sinaran Hills in Kajang.

UEM Sunrise is confident that these products will be well received, although it didn’t provide a profit forecast.

The developer expects to complete its land transaction with KLK Land Sdn Bhd this year as part of a joint development.

It said it had on-going projects with unrecognized revenue of RM 3.4 bln on its books as of 31 December.

UEM Sunrise was created from a merger between UEM Land and Sunrise Bhd.

UEM Land was a government-linked company that started out as a township developer.

It was the master developer and primary landowner in Nusajaya in Johor.

Sunrise Bhd was a developer that was known for luxury condominiums such as Sunrise Mont Kiara.

It also had property interests in Australia, South Africa and the UK.

The company just announced earnings for Q4 FY13:

Revenue: -16% to RM 573.1 mln
Profit: -61% to RM 78 mln
Cash flow from operations: RM 600.6 mln vs RM 73.4 mln
Dividend: 4 sen per share vs 3 sen per share

On a quarter-on-quarter basis, UEM Sunrise registered lower revenue due to the completion of the land sales to Southern Marina Development Sdn Bhd and Nusajaya Tech Park Sdn Bhd, a joint venture with Ascendas, in Q3FY14.

It said its lower profit on a quarter on quarter basis was mainly due to lower land sales.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

1. Why the one big lump of expenses?

For Q4FY13, UEM Sunrise’s expenses jumped to RM 165.9 mln from RM 84.4 mln the same quarter the previous year – even as revenue fell.

It did not explain the jump in expenses.

According to MIDF, the increase is possibly related to a backlog of legal fees and loan documentation fees, which was expensed all at once in Q4FY13.

If this is the case, what was the rationale from expensing them all at the same time?

2. Is it due to recognise any profit from past land sales in quiet Q1FY14?

The management of UEM Sunrise has told analysts it expects Q1FY14 to be a quiet quarter as the market adjusts to the new property cooling measures.

Its new launches will commence from Q2, which means it will have a quiet Q1.

Q4FY13 revenue was lower due to the absence of land sales.

For FY13, land sales in Puteri Harbour to Liberty Bridge Sdn Bhd for RM 400 mln and Southern Marina Development Sdn Bhd for RM 182 mln, was responsible for increasing revenue by 28% to RM 2.43 bln.

Without such land sales, UEM Sunrise said its property development revenue for FY13 was flat compared to FY12.

The land sales were part of a joint venture with the Kuok Group.

For FY14, UEM Sunrise still has profits to book on the remaining phases of the joint venture with Ascendas, 270 acres of the Motorsports City joint venture and the recent joint venture with KL Kepong.

Is it due to recognise any of the profit from land sales in Q1?

Total number of questions in the full story: 8)

We have sent these questions to the company to invite them for an on-camera interview, and/or seek their written response.

So far, we have not had a reply (which is why you are seeing this message).

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