Period  2Q13 / 1H13

Actual vs. Expectations  1H13 core net profit of RM194m is deemed as within expectations, although it made up 59% of street and 60% of our estimates. Expect a quieter 2H13 as new launches were heavily weighted in 1H13.

 Sales in 1H13 was strong at RM1.34b (+49% YoY) and we consider this to be on track to meet our FY13E target of RM1.8b (refer overleaf).

Dividends  None, as expected.

Key Results Highlights  YoY, 1H13 core net earnings rose 69% on the back of strong sales growth and billings from on-going projects. Positively, the group managed to sell its inventories from Binjai 8, Kepong Business Park and an office block from The Horizon which gives premium margins being completed products. Hence, gross margins were slightly better at 49.6% (+1.9ppt).

 QoQ, 2Q13 core earnings was 32% lower to RM79m on higher comparative base effect where the last quarter includes recognition of an en bloc sale (Horizon office: RM183m).

Outlook  Since 1H13 sales are ahead of our FY14E sales target, we expect 2H13 sales to be weaker than 1H13 due to timing of launches where most of the heavy weight projects were already launched in 1Q13. For 2H13, the group intends to launch South View service apartments (GDV: RM600m) and Desa III (GDV: RM14m) in 4Q13.

Change to Forecasts  No changes to estimates. Unbilled sales of RM1.2b provides close to one year earnings visibility.

Rating   Upgrade to OUTPERFORM

 In view of the market’s uncertainty on the sector’s prospects, we believe it is time to re-look at more ‘defensive’ developers which can potentially weather such volatilities with attributes such as strong cash position and attractive dividend yield. After receiving payments for their previous en bloc sales, which resulted in cash and equivalents increasing by 208% to RM808m (although c. RM501m is now under short-term investments, which are easily liquidated), UOA has the financial resources to meet our FY13E dividend of 13.0 sen or 6.1% yield. Clearly, UOA’s yield is more attractive than the retail MREIT average of 5.5%. Hence, we upgrade the stock to OUTPERFORM from MARKET PERFORM.

Valuation  Maintain TP of RM2.41 based on 33% discount to its FD RNAV of RM3.60. Note that our discount applied is at the steepest end for developers under our coverage (>RM1.0b market cap).

Risks  Sector risks, including negative policies and disappointing dividends.

Source: Kenanga