UOA Development’s (UOAD) 1Q19 results lagged behind market expectations, but we expect stronger 2H19 results with planned launches of new projects with a total GDV of about RM1bn. Net profit jumped 86% yoy on higher progress billings for ongoing projects, while the operating profit margin improved. We maintain our earnings forecasts and reiterate our BUY call on UOAD with a slightly higher 12-month target price of RM2.64, based on a 30% discount to RNAV.

Within Expectations

Net profit of RM60m (+86% yoy) in 1Q19 comprised 16% of the consensus and our full-year forecasts of RM370-387m. Revenue jumped 42% yoy to RM245m on higher progress billings for ongoing projects and sale of inventories. EBIT surged 90% yoy to RM84m with the EBIT margin expanding 9ppt to 34.3% on a high-margin product mix and better cost efficiency. Net profit fell 56% qoq in 1Q19 due to the non-recurrence of the gain on the sale of a commercial building in UOA Business Park in 4Q18.

Sustained Pre-sales

UOA achieved pre-sales of RM171m in 1Q19, similar to the RM172m presales in 1Q18. The main ongoing projects that contributed to pre-sales and revenue were Sentul Point, South Link, United Point Residence and UOA Business Park. These projects had achieved high take-up rates of 77-91% at end-1Q19, improving the overall property development profit margin. High unbilled sales of RM1.4bn are likely to support revenue in 2019-2022.

New Launches Planned

UOA plans to launch RM1.29bn worth of properties in 2019, namely Bandar Tun Razak development in Cheras, Goodwood Residence in Bangsar South, Aspen Green Residence in Sri Petaling, and UOA Business Park (Phase 2).

Maintain BUY

We continue to like UOA for its strong balance sheet (net cash of RM630m or RM0.34/share), attractive 2020E PER of 9x and net yield of 6.6%. We believe that its strong balance sheet makes the group more resilient in the current weak property market. We lift our RNAV/share estimate to RM3.77 from RM3.71 as we roll forward our valuation base year to 2020E. Based on the same 30% discount to RNAV, we raise our TP to RM2.64 from RM2.60. UOA remains our top small-cap BUY in the property sector. Key downside risk is prolonged domestic property market weakness.

Source: Affin Hwang Research - 30 May 2019