UOA’s earnings trajectory slowed as expected in 3Q17 with core net profit declining 45% qoq to RM90m following the completion of the South View project in 2Q17. Core net profit was still up 7% yoy to RM300m in 9M17. We maintain our earnings forecasts with expectations of a weaker 4Q17 result. UOA is planning launches worth RM1.46bn in 4Q17 and there is potential upside to our earnings forecasts if sales exceed our expectations. Maintain BUY with TP of RM3.0, based on a 30% discount to RNAV. Net dividend yield of 6.1% for FY17E remains attractive.

Slower Quarter

Revenue grew 22% yoy to RM882m in 9M17 (9M16: RM726m), mainly derived from the completion of South View, Desa Sentul and Suria@North Kiara, and progress billings for ongoing projects like United Point Residences and Sentul Point. The EBITDA margin fell 1.2 ppts yoy to 50.6% due to higher operating costs (+25% yoy). Coupled with a higher effective tax rate of 25.6% (+4.4 ppt yoy) and the absence of fair-value gains, net profit contracted by 9% yoy to RM299m in 9M17 (78% of consensus and our FY17E earnings of RM382-383m). Net profit fell 18% yoy to RM91m in 3Q17 due to lower revenue, while earnings were down 46% qoq due to lower revenue.

Lower Sales

UOA achieved new property sales of RM924m in 9M17, down 19% yoy from RM1.15bn in 9M16. The new sales mainly came from its Sentul Point (44% of sales) and United Point Residence (41% of sales) projects. 92% of new sales were from residential projects while commercial unit sales contributed the balance. Its ongoing projects have seen good take-up rates: Southbank Residence (99%), Danau Kota Suite Apartments (74%), United Point Residence (67%) and Sentul Point (59%).

Aggressive Launches Planned for 4Q17

UOA is planning more aggressive launches worth about RM1.46bn starting from 4Q17. The key new projects are South Link (GDV of RM550m), Desa Commercial Center and Bandar Tun Razak, Cheras (GDVs of RM300m each). This should sustain its revenue growth in FY17-18E. The remaining GDV of RM13.66bn, excluding ongoing projects, provides a strong pipeline of projects to sustain its activities even without new land bank.

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

We continue to like UOA for its strong management, good product branding and strong net cash position (RM0.28/share). Maintain BUY. The key risk to our view is a prolonged downturn of the Klang Valley property market.

Source: Affin Hwang Research - 22 Nov 2017