Weak Results, Decent New Sales; Maintain BUY

UOA reported weaker 1Q18 RM34m core net profit of RM34m (-21% yoy) due to sharp decline in EBIT margin, as its key projects are still at the early stages of developments. The results were below street and our expectations. We cut our 2018-20E EPS forecasts by 21-27% after incorporating lower annual sales and weaker margins, in view of the weak market conditions. Notwithstanding our earnings and TP cut, we continue to like UOA for its yields of 6.6%, net cash position and attractive valuation at 10x CY19E PER. Maintain BUY.

1Q18 Core Net Profit Slipped by 21% Yoy, Below Expectations

Despite a 11% revenue growth, UOA’s 1Q18 core net profit fell by 21% yoy due to a sharp decline in EBIT margin to 25.6% (-18.6 ppt). Most of its existing development projects are at their early stages (completion <33%), where profit margins are typically lower. Overall, the results were below both market and our expectations – 1Q18 core profit accounted for 7-8% of street and our full year earnings forecasts. Key variances to our forecasts are lower than expected progress billings and weak margins.

Sequentially, Core Earnings Dipped by 68%

UOA’s 1Q18 core net profit fell by 68% qoq due to lower revenue (-14%) and lower EBIT margin (-24.1 ppt). To recap, UOA’s 4Q17 revenue and earnings were lifted by sales of completed units at Desa Green and Scenaria @ North Kiara.

Property Sales Grew 49% Yoy to RM452m Driven by New Launch

UOA achieved higher new property sales of RM452m in 1Q18 (+49% yoy), driven by modest take up for its newly launched SouthLink @ Bangsar South (RM305m sales), and sustained demand for its ongoing projects (Sentul Point, United Point Residence). Management plan to launch another RM1.3bn worth of projects by end-2018.

Cutting EPS by 21-27%, Maintain BUY With a Lower TP of RM2.84

We cut our earnings forecasts, incorporating lower new property sales, delay in launches and weaker EBIT margins, taking into consideration the weak market conditions. In tandem, we trimmed our 12-month price target to RM2.84, based on 30% discount to RNAV. Notwithstanding the cut, we continue to like UOA for its branding, 6.6% 2019E yield, strong balance sheet and attractive valuation of 10x 2019E PER. Key risks are weak property sales and margin compression.

Source: Affin Hwang Research - 25 May 2018