UOA’s 1H18 earnings continues to lag expectations. Core net profit fell 29% yoy to RM153m in 1H18 on lower revenue (-23% yoy) and lower EBITDA margin (-2.9ppt yoy). However, core net profit jumped 266% yoy to RM119m from a low base as progress billings accelerated. We maintain our earnings forecasts on expectations that the earnings growth momentum will sustain in 2H18. We continue to like UOA for its attractive net dividend yield of 6.6%, net cash position and attractive CY19E PER of 9x. Maintain BUY with 12-month TP of RM2.84, based on 30% discount to RNAV.

Better Sequential Quarter

UOA’s 1H18 net profit of RM150m (-31% yoy) comprises 41% of consensus and our FY18E forecasts of RM364m. Core net profit surged 266% yoy to RM119m in 1H18 on the back higher revenue (+77% qoq) and improved EBITDA margin of 58.9% in 1H18 compared to 28.5% in 1H17.

Expect Better 2H18 Result

We expect better 2H18 result as progress billings accelerate on high unbilled sales of RM1.68bn and rising rental income on investment properties. The Sphere in Bangsar South (80% tenanted), UOA Corporate Tower (committed tenancies close to 100%) and Vertical Corporate Tower B are its key investment properties.

Rising Sales

UOA achieved higher pre-sales of 806.7m in 1H18 compared to RM613m in 1H17. Its SouthLink, Sentul Point and United Point Residence serviced apartments/condominium projects were the main contributors to pre-sales (78% of total). UOA targets to launch RM0.9bn GDV of new projects in 2018, ie, Bandar Tun Razak in Cheras and The Park Residences II in Bangsar South. There is also plans to develop a new 600-unit hotel in Bangsar South called South Point with expected completion in 2020.

Maintain BUY

We like UOA for its strong branding, strong balance sheet, attractive net yield of 6.8% and FY19E PER of 9x. UOA remains our top mid-cap sector BUY. Key risks are weak property sales and margin compression.

Source: Affin Hwang Research - 29 Aug 2018