UOA Development’s (UOAD) 1Q20 results were above market and our expectations. Net profit jumped 112% yoy to RM127m in 1Q20, mainly due to the completion of its United Point Residence project, while the EBITDA margin improved to 49.4% (+13.0 ppt yoy). UOAD achieved sales of RM115m in 1Q20, weaker compared to RM171m in 1Q19. We maintain our earnings forecasts assuming weaker 2Q20 results due to the full impact of the government’s Movement Control Order (MCO). The 2020E PER of 10x and net yield of 7% are attractive, in our view. UOAD remains our top small-cap sector BUY with an unchanged TP of RM2.28, based on a 30% discount to RNAV.

Above Expectations

The net profit of RM127m (+112% yoy and 13% qoq) in 1Q20 comprises 37% of the consensus and our full-year forecasts of RM339-347m. Revenue surged 53% yoy and 65% qoq to RM375m on higher progress billings for ongoing projects, ie, United Point Residence, SouthLink and Sentul Point. PBT grew by a faster 121% yoy to RM185m in 1Q20 due to the better profit margin on completion of its United Point Residence project whose take-up rate reached a comfortable 89% level at end-1Q20.

Focus on Existing Projects

UOAD is focusing its sales effort on existing projects such as Goodwood Residence (21% take-up rate) and Aster Green Residence (34%). Slower sales in 1Q20 were mainly due to the closure of sales galleries during the MCO. It plans to launch its Bandar Tun Razak and UOA Business Park (Phase 2) in 2H20 with a total gross development value (GDV) of RM440m. Unbilled sales of RM641m will likely support earnings in 2020-21, while the remaining land bank with an estimated GDV of RM12.6bn will sustain its operations. UOAD is exploring opportunistic land acquisitions to drive long-term growth.

Weaker 2Q20 Performance Expected

We maintain our earnings forecasts on expectations of weaker performance in 2Q20 due to the full impact of the MCO and the slow recovery expected in 2H20. Its strong operating cash inflow in 1Q20 has increased the group’s net cash position to RM944m or RM0.48/share (27% of its current market cap).

Maintaining Our BUY Call

UOAD saw the strongest earnings growth among the property companies under our coverage in 1Q20. We reiterate our BUY call and 12-month TP of RM2.28, based on a 30% discount to RNAV. Key downside risk: weak property sales amidst a prolonged property market downturn.

Source: Affin Hwang Research - 30 Jun 2020