UOA Development’s 2018 results were a positive surprise. Core net profit jumped 52% qoq to RM142m in 4Q18 due to the acceleration in progress billings for its existing projects although it fell 10% yoy to RM379m in 2018 due to a lower profit margin despite the higher revenue. We maintain our 2019E core earnings of RM387m (+2% yoy) but cut our 2020E earnings by 9% to reflect the potential delay in the launch of its Jalan Ipoh project. We maintain our BUY call with a 12- month target price of RM2.60, based on a 30% discount to RNAV.

Above Expectations

UOA’s 2018 results were above market and our expectations. Net profit of RM379m was above the consensus and our forecasts of RM341-343m. We were surprised by the acceleration in progress billings in 4Q18. Revenue grew 17% yoy to RM1.26bn in 2018, contributed mainly by its United Point Residence, Sentul Point and UOA Business Park projects. But EBIT fell 10% yoy to RM497m due to a 46% yoy surge in the cost of sales. EBIT margin normalised to 39% in 2018 compared to 51% in 2017.

Lower Net Profit Mainly Due to Absence of One-off Gains

The headline net profit fell by a sharper 25% yoy in 2018, mainly due to the net exceptional gain of RM86m in 2017. There was a re-measurement gain for its UOA Business Park project with the acquisition of an additional 35% stake in 2017.

Higher Pre-sales

UOA achieved higher pre-sales of RM1.48bn in 2018 compared to RM1.30bn in 2017. Unbilled sales of RM1.5bn, equivalent to 1.2x 2018 revenue, should support earnings going forward. UOA plans to launch RM1.74bn worth of properties in 2019, ie, Goodwood Residence in Bangsar South, Sri Petaling land and UOA Business Park (Phase 2). As there is no firm plans to launch its Jalan Ipoh project in 2019, we cut our core 2020 EPS forecast by 9%.

Maintain BUY

We continue to like UOA for its strong balance sheet (net cash of RM505m or RM0.27/share), attractive 2019E PER of 11x and net yield of 6.5%. We believe that its strong balance sheet makes the group more resilient in the current weak property market. UOA remains our top small-cap BUY in the property sector.

Source: Affin Hwang Research - 26 Feb 2019