Period     1Q13 

Actual vs. Expectations   1Q13 core earnings of RM115m made up 35% each of street and our estimates. However, we deem this as ‘broadly within’ as the next 2 quarters may face lower billings, particularly from Vertical and Kencana Square where construction progress is still at substructure levels. 

1Q13 sales of RM929m made up 52% of our FY14E sales of RM1.8b (refer overleaf). 

Dividends    None, as expected. 

Key Results Highlights   YoY, 1Q13 core earnings rose by 181% as 1Q13 recognize an en bloc sale of inventory from Horizon Phase II amounting to RM183m to PHB – it is also the main reason that its gross margins expanded by 2.2ppt to 49.6%. 

QoQ, 1Q13 core earnings rose 133% for the reasons mentioned above. Additionally, property pretax margin increased by 10.3ppt to 44.8% which could also be attributed to lump-sum sale of Binjai 8 that carries rich margins (being a completed product). Project’s sales were amounted to RM105m.  

Outlook    For the remaining part of the year, the group intends to launch another c. RM1.3b worth of projects, including new phases of Scenaria and Desa Green, Vertical Tower 2 and Southview @ Federal Highway. 

Change to Forecasts     No changes to our estimates, although we did increase our FY13E NDPS by 10% to 13.0sen (refer overleaf). Unbilled sales of RM1.1b provides <1 year visibility. 

Rating   Downgrade to MARKET PERFORM

Valuation    The stock has run up by 47% YTD vs. the KLPRP’s 33% and large cap developers’ average of 41%; in fact, we observed those that ran above the sector’s average are largely Johor-based developers (refer overleaf). Share price is approaching our TP, albeit our recent upgrade last week. We had earlier positioned UOA as a ‘defensive’ developer due to its net cash position, conservative landbanking strategies and more compelling yields vs. larger retail M-REITs. However, recent price run-up has made it less compelling and at our TP, its FY13E net yield will only be 5.0% or narrowing towards the large retail M-REITs yields (4.0%-4.9%). Hence, we recommend that investors maintain position on the stock for FY12 dividends (12.0sen) which is likely paid-out in July-13. We prefer more aggressive or Johor based developers for more news flow. 

We may review our CALL/TP upon UOA paying out higher FY13E dividends, further sector upgrades and sizeable GDV replenishments. Meanwhile, we maintain TP of RM2.60 based on 24% discount to FD RNAV of RM3.43; our discount is inline with our weighted sector FD RNAV discount of 23%. 

Risks    Sector risks, including negative policies and disappointing dividends.

Source: Kenanga