• UOA Development (UOAD) reported net profit of RM147m (-20% yoy) in 6M20, which was within our expectation assuming stronger 2H20 earnings.
• Slower sales of RM142m (-55% yoy) in 6M20 and closure of project sites during the Movement Control Order (MCO) period led to lower revenue.
• Attractive net yield of 7.1% in 2020E, which is backed by net cash of RM1.08bn or RM0.55/share. UOAD remains a top sector BUY with a RM2.28 target price (TP), based on 30% discount to RNAV.

Results Within Our Expectations

Revenue fell 12% yoy to RM516m in 6M20 due to lower progressive recognition for ongoing property development projects in 2Q20. Revenue plunged 59% yoy to RM141m in 2Q20. Net profit declined 20% yoy to RM147m in 6M20 with lower earnings of RM23m (-82% yoy) recorded in 2Q20. Market consensus full-year net profit forecast is RM328m and our estimate is RM347m for 2020. We deem the results within our expectations as we expect stronger 2H20 earnings as construction activities for ongoing projects have resumed. Construction progress was halted during the government’s Movement Control Order (MCO) period for its South Link and Sentul Point projects.

Focus on Selling Ongoing Projects

UOAD achieved property sales of RM142m, mainly from United Point Residence, The Goodwood Residence, Aster Green Residence, Sentul Point and South Link Lifestyle Apartments. Unbilled sales of RM578m will support earnings over the next 2-3 years. Its net cash increased to a 10-year high of RM1.08bn as at end-June, putting the company in a strong position to weather the downturn. UOAD will continue to focus on generating sales from its ongoing Goodwood Residence (21% take-up rate) and Aster Green Residence (36% take-up rate) projects in 2020. It plans to launch residential units with age care/medical care facilities under its new Bandar Tun Razak development with gross development value (GDV) of RM300m in 2H20.

A Top Sector BUY

We maintain our earnings forecasts. Its remaining land bank with a total GDV of RM15.9bn will sustain its property development operations over the long term, while it is on the lookout for opportunistic land bank acquisitions. Maintain our BUY call with a RM2.28 target price, based on 30% discount to RNAV.

Key Risks

Downside risks: (i) weaker-than-expected property sales; (ii) slower-than-expected recovery in office space demand.

Source: Affin Hwang Research - 27 Aug 2020