UOA’s results came in below consensus and our expectations. Net profit fell 55% yoy to RM43.4m in 1Q17 due to lower-than-expected revenue recognition and higher operating expenses. We trim our EPS forecasts by 1-3% in FY17-19E to reflect slower revenue recognition of RM1.52bn unbilled sales, mainly from ongoing projects such as Sentul Point and United Point. We maintain our BUY call with an unchanged TP of RM2.95, based on 30% discount to RNAV. Net dividend yield of 5.5% is attractive, supported by net cash of RM0.39/share.

Below Expectations

Net profit of RM43.4m achieved in 1Q17 (-55% yoy) was below consensus and our expectations, comprising 11% of full-year consensus and our forecasts of RM383-384m. Revenue declined 23% yoy and 43% qoq to RM155m in 1Q17 (1Q16: RM201m) due to lower-than-expected revenue recognition and several project completions in 4Q16. EBIT margin fell by 11.3ppt to 44.2% yoy in 1Q17 compared to 55.6% in 1Q16 due to higher operating expenses. PBT declined by 85% qoq to RM71.5m (4Q16: RM476.7m) due to the absence of RM345m fair value gain on investment properties in 4Q16.

Higher New Property Sales and Unbilled Sales

New property sales of RM303m in 1Q17 was 79% higher than 1Q16 sales of RM70m. The new sales mainly came from its Sentul Point and United Point residential projects with cumulative take-up rates of 66% and 74% respectively. We expect higher earnings contribution from these two projects with a total gross development value (GDV) of RM3bn. Unbilled sales increased by 8% to RM1.52bn in 1Q17 from RM1.46bn in 4Q16. Inventory currently stands at RM216m with launch GDV of RM350-400m.

Maintain BUY With TP RM2.95 With Slightly Adjusted Earnings

We adjust our EPS forecasts down by 1-3% in FY17-19E to reflect lower revenue recognition of RM1.52bn unbilled sales. Progress billings for ongoing projects such as Sentul Point and United Point is slow since completion rate is only 20% currently. We continue to like UOA for its strong management, good product branding and strong net cash position (RM0.39/share). Maintain BUY. Risk to our view is a prolonged downturn for the Klang Valley property market.

New Property Launches Planned in 2017

UOA has planned new project launches worth RM690m in FY17, comprising Desa Commercial Center, Taman Desa, Bandar Tun Razak Development, Cheras, and affordable homes in Selayang. This should sustain its sales in FY17.

Source: Affin Hwang Research - 23 May 2017