Period

1Q15

Actual vs. Expectations

1Q15 core earnings of RM78.5m came within expectations, as it accounted for 28% of our, and 25% of street’s, full-year estimates.

Sales stood at RM146m, which is weak in contrast to our FY15E sales target of RM1. 3b. However, this is expected considering the weak buyers’ sentiment running up to GST while the group has also not rolled out any new launches during the quarter.

Dividends

None, as expected.

Key Results Highlights

QoQ, 1Q15 core earnings was down by 11.0% largely due to weaker billings for the period while we observed slight gross margin compressions of 2.3ppt to 41.0% due to less inventory sales. However, the gross margin is still healthy at normalized levels of 40%-45%.

YoY, 1Q15 core earnings jumped by 76% largely due to stronger property billings as Desa Green, Vertical Office, Scenaria, South View, Southbank and Desa Sentul are at advanced construction stages and backed by healthy sales. Positively, the group remains in a net cash position (-0.07x net gearing).

Outlook

New launches for FY15 include Kepong V (indicative launch size of RM1b GDV, future KTM station approved) and North Kiara Boulevard (GDV RM120m). Note that the group has c.RM1.9b worth of unsold WIPs/inventories. Desa Sentul Phase 2 could be launched this year too, depending on market conditions.

Their next anchor project will be the Jalan Ipoh development which is scheduled for launching in FY16 which GDV has now doubled to RM6.0b (refer overleaf).

Change to Forecasts

No changes to estimates as we expect sales to pick up in 2H15. Unbilled sales of RM1.7b provide up to 1.5 years visibility.

Rating

Maintain MARKET PERFORM

Valuation

Our FD RNAV has been increased by 7.0% to RM4.00 largely due to the increase in the Jln Ipoh development’s GDV. However, we opt to maintain our TP of RM2.10, which implies a wider discount rate of 47% (45% previously) to our updated FD RNAV; this is on par with the big-cap developer’s average of 46%. We are comfortable with our TP as we view UOADEV as a defensive developer given its strong net cash position and very rich margins. They also adopt a conservative approach, which means that earnings trends will likely be relatively flattish in the coming years. While we liken UOADEV to MREITs, its earnings’ visibility is relatively weaker compared to MREITs, and thus, requires >1ppt spread to MREITs’ yields. Our TP implies FY15E net yield of 6.2%, which is decent compared to sizeable MREITs’ average net yield of 5.1%. Even though our TP implies less than a 3.0% total return, we view that the market is likely to favour defensive stocks during challenging times. We also reckon that the recent strengthening of its share prices could be due to investors waiting for the FY14 dividend entitlements in June.

Risks to Our Call

Weaker-than-expected property sales. Higher-thanexpected sales and administrative costs. Negative real estate policies. Tighter lending environments.

Source: Kenanga Research - 28 May 2015