UOA’s 9M18 results were below our and market expectations. Net profit fell 22% yoy to RM242.5m following the completion of several projects in 9M17, though UOA achieved higher sales of RM1.14bn in 9M18 compared to RM0.92bn in 9M17. We cut our core EPS by 11- 19% for FY18-20E to reflect slower sales of its office block inventories and a lower profit margin. We continue to like UOA for its attractive net dividend yield of 7%, net cash position and attractive FY19E PER of 10x, and we maintain our BUY with a lower 12-month TP of RM2.60 (from RM2.84), based on a 30% discount to RNAV.

Below Expectations

UOA’s net profit of RM242.5m (-22% yoy) in 9M18 only constitutes 67% of the consensus FY18 forecast of RM359m and our previous estimate of RM364m. The slower sales of commercial properties and a lower profit margin were the main reasons for the miss. Revenue declined 12% yoy to RM777m in 9M18 as some of its projects were completed in 9M17. United Point Residence, Sentul Point Suite Apartments, South Link Lifestyle Apartments and sales of inventory contributed to revenue. Core net profit fell by 20% yoy to RM247m in 9M18 due to the profit margin squeeze from higher administration costs for its rising inventories.

Weaker Sequential Quarter

Revenue eased 2% qoq to RM300m, while core net profit fell 22% qoq to RM94m in 3Q18. Revenue and earnings were boosted by the enbloc sale of The Horizon Tower 1 at Bangsar South for RM57m in 2Q18 and there were no enbloc sales in 3Q18.

Higher Sales With More Launches Planned

UOA achieved higher pre-sales of RM1.14bn in 9M18 compared to RM0.92bn in 9M17. Its SouthLink, Sentul Point and United Point serviced apartments/condominium projects were the main contributors to pre-sales. We expect high unbilled sales of RM1.63bn will sustain earnings over the next 2-3 years. UOA has planned launches worth RM2bn in 2019, ie, Bandar Tun Razak in Cheras and Goodwood Residence in Bangsar South, Sri Petaling and UOA Business Park Phase 2.

Maintain BUY

We like UOA for its strong branding, robust balance sheet, attractive net yield of 7% and FY19E PER of 10x. UOA remains our top mid-cap sector BUY. Key risks are weak property sales and margin compression.

Source: Affin Hwang Research - 28 Nov 2018