News  UOA has entered into a subscription agreement to subscribe to 3.0m shares for RM3.0m in Eureka Equity S/B which has a share capital of RM5.0m, implying an effective stake of 60%. The remaining 40% stake is held by the following shareholders; Lau Soon Who, Mow Chooi Yoon and Kok Koek Hung.

 Eureka is the landowner of 3 acres land along Jalan Klang Lama acquired at a total cost of RM63.5m or RM486psf, which we understand is freehold mixed development land. The land has a frontage facing Jln Klang Lama and is very accessible, being located 1km away from the Federal Highway and is at close proximity to Mid Valley City.

Comments  The project has an estimated RM500m GDV and we understand that it is immediately developable into a high-rise residential development with a retail/shop lot podium. Pricing per unit is likely at RM600k-800k/unit

which we believe is digestible by the market, particularly given its prime location. Eureka has already assumed land financing of RM60m. While it will be consolidated under subsidiary accounting, impact to its net gearing is minimal as the group is deeply in a net cash position.

 We were positively surprised by the announcement as landbanking activities amongst developers have been quiet. Furthermore, we like the acquisition as: (i) land cost is fair considering that it makes up 13% of GDV, which implies c. 35% gross margins and (ii) it is a digestible property product given the current market needs for such products in prime locations.

Outlook  The Jalan Klang Lama project launch is likely by 2Q14.  The group has two more en-bloc offices in its inventory for sale in Bangsar South, although we are unclear if these sales will take place in 2014; hence we have not imputed for these two en-bloc office sales as yet.

Forecast  No material impact to earnings estimates and we maintain our FY13E and FY14E sales of RM1.9b and

RM2.0b, respectively. Although the project will contribute to FY14 sales, we have pushed the launch of Desa II commercial Phase II (GDV: RM300m) to FY15.

Rating Maintain OUTPERFORM

Valuation  The project has a minimal impact to our FD RNAV as it only increases it by 2 sen to RM3.69. Thus, we maintain our TP of RM2.10, which still implies a 43% discount to FD RNAV of RM3.67. Our TP also implies strong net yields of 6.2%.

 UOA has low borrowings and is deeply in a net cash position, which more than supports its ability to pay out an estimated NDPS of 7.0 sen each for FY13 and FY14. They are also focusing on more housing priced between RM500k-RM800k/unit, which are saleable products particularly in the Klang Valley. More importantly, at this level the net dividend yield is a compelling 7.1%, which is better than sizeable MREITs or most developers, while its FY14E PER of 6.7x is lower than its historical average of 7.4x.

Risk to Our Call Sector risks, including weaker sales, negative policies and disappointing dividends.

Source: Kenanga