UOA achieved RM209m in core net profit in 1H17, above consensus and our forecasts (55% of RM381.5m for FY17E). But, we expect lower earnings in 2H17 due to near-completion of several existing projects. Hence, we maintain our FY17E EPS but tweak the FY18-19E EPS upwards by 0.8-1.4% to reflect new planned launches in 4Q17, and raise our RNAV/share to RM4.29. Maintain BUY call with a higher TP of RM3.00, based on the same 30% discount to RNAV. Attractive 2017E net dividend yield of 5.8%, supported by net cash of RM0.43/share.

Stronger Quarter

Revenue jumped 58% yoy and tripled qoq to RM465.6m in 2Q17 (2Q16: RM294.8m), mainly derived from the completion of South View, Desa Sentul and Suria@North Kiara, and progress billing for ongoing projects like United Point Residences and Sentul Point. However, EBITDA margin was slashed by 10.4 ppts yoy to 49.3% due to higher operating costs (+99% yoy), translating to slower core net profit growth of 34% yoy to RM166.1m in 2Q17. For 1H17, core net profit declined 5% yoy to RM209.2m despite an increase of 25% yoy in revenue to RM620.7m due to higher operating costs (+56%), depreciation (+23%) and lower associate income (-96%).

Expect Lower Earnings in 2H17

For 1H17, UOA achieved RM209.2m in core net profit, comprising 55% of the consensus and our full-year forecasts of RM381.5m. Although earnings are above our and consensus expectations, we are maintaining our FY17E earnings as we expect lower earnings from its two main contributing projects, i.e. Sentul Point and United Point Residences, in 2H17. Both are still at the early stage of construction (completion rate of 17%). 2H17 will be mainly supported by its remaining unbilled sales of RM1.4bn (+16% yoy), new property sales of RM613m in 1H17 and existing inventory of RM210m as at 30 June 2017.

Maintain BUY With Higher 12-month TP of RM3.00

We maintain our FY17E EPS but tweak our FY18-19E EPS upwards by 0.8- 1.4% to reflect new planned launches in 4Q17 i.e. South Link (RM550m), South Point (RM220m) and Bandar Tun Razak (RM300m). We raise our RNAV/share estimate to RM4.29 from RM4.21 after imputing upcoming new launches to derive our target price of RM3.00 (based on 30% discount to RNAV). We continue to like UOA for its strong management, good product branding and strong net cash position (RM0.43/share). Maintain BUY. The key risk to our view is a prolonged downturn for the Klang Valley property market.

Source: Affin Hwang Research - 24 Aug 2017