• UOA Development (UOAD) reported earnings that were above market expectations but slightly below ours. Net profit eased 2% yoy to RM391m in 2020 despite a 24% decline in revenue, boosted by the UOA Corporate Tower (UOA CT) disposal gain
• UOAD achieved slower sales of RM384m in 2020 compared to RM787m in 2019 due to the weak market sentiment and lockdown disruptions in 1H20
• UOAD proposed a DPS of RM0.15 for 2020, in line with our expectations and giving an attractive net yield of 8.6%. UOAD remains a top sector BUY with a higher 12-month TP of RM2.44, based on a 30% discount to RNAV

Results Were Slightly Below Expectations

Core net profit of RM410m in 2020 was 7% below our forecast of RM440m but 15% above the consensus estimate of RM357m. Revenue was below our expectation as the Conditional Movement Control Order (CMCO) slowed progress billings on some projects. Revenue fell 24% yoy to RM845m in 2020 as a major project called United Point Residence (UPR) was completed in 1Q20 and new projects are still at an early stage of completion. EBIT fell 20% yoy to RM370m with the margin improving 2.1ppt to 43.8% partly due to a higher profit margin on completion of UPR. The disposal of UOA CT for RM700m to UOA REIT was completed on 30 Dec 2020. UOAD recognised a RM109m net fair value gain on its investment properties, such as UOA CT, prior to the disposal, which lifted its net profit to RM391m (-2% yoy) in 2020.

Sustained EBIT Recovery

Revenue jumped 45% qoq to RM194m in 4Q20 with higher progress billings and higher contributions from new projects such as Aster Green Residence and Goodwood Residence. UOA saw a sustained recovery with EBIT of RM80m (-1% qoq) in 4Q20 after hitting a low of RM35m in 2Q20 due to the MCO impact. It achieved sales of RM384m (-51% yoy) in 2020 from ongoing projects. Unbilled sales of RM312m are likely to support earnings in 2021-23E.

Attractive Yield

We lift our core EPS by 0.8-1.4% in 2021-22E on higher interest income with net cash increasing to RM1.76bn or RM0.90/share. UOAD proposed a RM0.14 final DPS (ex-date on 23 July 2021) and RM0.01 special DPS, giving an attractive net yield of 8.6% in 2020E. We expect lower earnings in 2021E due to lower rental income following the sale of UOA CT and hence a lower DPS of RM0.12. We maintain our BUY call with a higher TP of RM2.44, based on a 30% discount to our lifted RNAV (higher net cash). Key risk: slower-than-expected recovery in property sales.

Source: Affin Hwang Research - 25 Feb 2021