UOA Development’s (UOAD) 9M19 results were slightly above market expectations but within ours. Net profit grew 18% yoy to RM287m in 9M19, driven by progress billings on ongoing projects and inventory sales. Pre-sales fell to RM0.58bn in 9M19 compared to RM1.14bn in 9M18 as there were no new property launches. Valuations remain attractive at a 2020E PER of 8x and net yield of 8%. UOAD remains our top sector small-cap BUY with a 12-month target price of RM2.64, based on a 30% discount to RNAV.

Above Market Expectations But Within Ours

Net profit of RM287m (+18% yoy) in 9M19 comprises 78% of the consensus full-year forecast of RM370 and 74% of our estimate of RM387m. Revenue grew 13% yoy to RM877m, mainly driven by progress billings on ongoing projects such as United Point Residence, Sentul Point and South Link. The EBIT margin improved 1.3ppt to 45.6% in 9M19 due to higher other income (+31% yoy), which was derived from rental and hospitality operation of its investment properties. Net profit was up 11% yoy to RM102m in 3Q19 despite lower revenue (-4% yoy) due to the higher EBIT margin (+9.3 ppt), but fell 19% qoq due to slower progress billings.

Strong Operating Cash Flow

UOAD stands out in the sector with strong operating cash inflow of RM426m (+651% yoy) in 9M19. This was mainly driven by the reduction in inventories and higher collection of receivables. We believe cash billings for its three main projects mentioned above are accelerating as they are at 82-96% completion levels.

Lower Pre-sales

UOAD recorded sales of RM583m in 9M19 compared to RM1.14bn in 9M18 as there were no new launches of properties. High unbilled sales of RM1.05bn should shore up earnings. It is targeting to launch Aster Green Residence in Sri Petaling (RM250m gross development value) in 4Q19, which will likely spur sales.

Maintain BUY

Current valuations are attractive at a 2020E PER of 8x, net yield of 7.9%, and price/book of 0.7x. We see a strong balance sheet with net cash of RM504m or RM0.26/share as at end-3Q19. We reiterate our BUY call with an unchanged 12-month TP of RM2.64, based on a 30% discount to RNAV

Source: Affin Hwang Research - 27 Nov 2019