UOA Development’s (UOAD) 6M19 results were within market and our expectations. Net profit jumped 23% yoy to RM185m in 6M19, driven by progress billings on ongoing projects and inventory sales. Earnings more than doubled qoq to RM125m in 2Q19. But pre-sales fell to RM319m in 6M19 compared to RM807m in 6M18 due to weak market conditions. Valuations remain attractive at a 2020E PER of 9x and net yield of 7%. UOAD remains our top small-cap BUY with a 12- month target price of RM2.64, based on a 30% discount to RNAV.

Within Expectations

Net profit of RM185m (+23% yoy) in 6M19 comprised 48-50% of the consensus and our full-year forecasts of RM370-387m. Revenue jumped 24% yoy to RM589m on higher progress billings for ongoing projects and sale of inventories. Projects that contributed to revenue in 6M19 include the Sentul Point (34% of revenue), United Point Residence (30% of revenue) and South Link (17% of revenue). EBIT saw slower growth of 15% yoy to RM254m with the EBIT margin reduced by 3.2ppt yoy to 43.2% due to higher operating costs (+32% yoy). Net profit jumped 109% qoq to RM125m in 2Q19 on the back of higher revenue and profit margin.

Lower Pre-sales

UOA achieved pre-sales of RM319m in 6M19, lower than the RM807m pre-sales in 6M18. The main ongoing projects that contributed to pre-sales were Sentul Point, South Link and United Point Residence. These projects had achieved high take-up rates of 79-93% at end-2Q19. There was also sale of inventories in 6M19 for its Desa Green, UOA Business Park, Scenaria@North Kiara Hills and South View Serviced Apartments. High unbilled sales of RM1.17bn are likely to support revenue in 2019-2022. UOA plans to launch RM1.29bn worth of properties in 2019-20, namely the 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 RM791m or RM0.40/share), and attractive 2020E PER of 9x and net yield of 7%. We believe that its strong balance sheet makes the group more resilient in the current weak property market. We reiterate our BUY call with a 12-month target price of RM2.64, based on a 30% discount to RNAV. Key downside risk is prolonged domestic property market weakness.

Source: Affin Hwang Research - 27 Aug 2019