UOA achieved a FY17 core net profit of RM405m (+8.6% yoy), which was within expectations. As one of our property sector top picks, we prefer UOA given its above-sector yields of 6.3-7.1% in FY18-20E, net cash position (RM0.27/share) and attractive valuation at 9.5x CY18E PER compared to peers at 16.3x. A 15sen dividend was proposed for the year. Maintain BUY with TP of RM3.11 (30% discount to RNAV).

Within Expectations

For 2017, the group achieved RM1bn of revenue (+8.6% yoy), mainly derived from: i) progressive recognition of on-going development projects from Sentul Point, United Point Residence, and Danau Kota, and ii) sales from completed units (Scenaria@North Kiara, Vertical Business Suites and Desa Green). Sequentially, pretax profit increased by 52.7% to RM216m in 4Q17 but fell by 54.7% yoy due to the significant fair value property gain of RM345m in 4Q16. Excluding the one-off items, 2017 core earnings of RM405m were within our and the market’s expectations.

Sales and Unbilled Sales Should Sustain Earnings Growth

UOA achieved new property sales of RM1.3bn (-8% yoy) in 2017, mainly from its Sentul Point (33% of sales) and United Point Residence (35% of sales) projects. Good take-up rates from its ongoing projects like Danau Kota (77%), United Point Residences (72%) and Sentul Point (64%), coupled with unbilled sales of RM1.4bn should sustain core earnings growth of 14-33% over 2018- 20E.

Above-sector Yields

Management proposed a 15sen dividend in 2017 (2016: 15sen), representing a payout of 53% on core net profit. UOA offers the highest dividend yields (2018/19E: 6.3/6.7%) within our property universe (fig 4), ranks top 5 among the 117 stocks under our coverage (figs 5 & 6) and above the REIT’s sector weighted average yields of 5.4/5.3 in FY18/19E (fig 3).

Reiterate BUY With Unchanged 12-month TP of RM3.11

We increased 2018/19E EPS by 6.4% to account for the actual FY17 results, and introduce our 2020E EPS. We continue to like UOA for its good product mix and pricing strategy, above-sector yields and attractive valuation of 9.5x CY18E PER, representing a 42% discount to peers. A key catalyst for the stock would be an earlier launch of its Jalan Ipoh project in 2019 (GDV: RM6bn). Maintain BUY. The key risk to our view is a prolonged downturn of the Klang Valley property market.

Source: Affin Hwang Research - 22 Feb 2018