Period

3Q15/9M15

Actual vs. Expectations

9M15 core earnings of RM306m came above expectations, making up close to 100% of street’s FY16E estimates and 109% of ours. The sterling set of results was due to more aggressive billings and strong margins on project completion.

The group chalked up RM709m sales over 9M15, making up 55% of our FY15E target of RM1.3b, which is considered ‘behind schedule’. Certain project launches scheduled for launch this year (e.g. Kepong V, Danau Kota@Setapak) are being pushed to 2016.

Dividends

None, as expected.

Key Results Highlights

QoQ, 3Q15 core earnings rose by 130% due to the completion of Vertical Office Suites, which was the main driver of the sharp rise in billings (revenue up by 51%) and a 12.7ppt increase in pretax margins.

YoY, 9M15 core earnings was up by 60% due to the reasons above, healthy billings and improvement of others operating income (+40%) on the back of better hospitality/property investment performance.

The group’s net cash position remains at 0.11x but if we include the RM424m in short-term investments, their net cash position would be 0.25x.

Outlook

We expect the group to launch Desa Business Suites (GDV RM300m) by year-end. However, UOADEV is pushing back its Kepong V (GDV: RM1.5b, future KTM station approved) and Danau Kota Suite Apartment@Setapak (GDV: RM230m) to FY16. Nevertheless, construction works will commence ahead of launch to ensure immediate project recognition upon launching. The group will also be launching Desa Sentul Ph2 (GDV: RM1.5b) and Southbank Ph2 (GDV: RM150m) in FY16 as well. The Jalan Ipoh development (GDV: RM6.0b) or the ‘next Bangsar South’, which was scheduled for launch in FY16, is now being pushed to FY17 due to planning reasons. Note that the group has c.RM2.0b worth of unsold WIPs/inventories.

Change to Forecasts

Raise FY15-16E core earnings by 20% each with corresponding NDPS by 8% to 14.0 sen each (refer overleaf).

Rating

Maintain OUTPERFORM

Valuation

Since our upgrade to OP back on 21-Aug, the stock has gained 16%. Meanwhile, its YTD gains of 7% crowned it the top performing big cap developer (>RM3b mkt cap) to date. This is due to its defensive profile of being a strong net cash development company with exposure purely in Kuala Lumpur. Its development margin is one of the best in the industry which is a positive and defensive factor in light of the lukewarm prospects for the property market over the next 12 months. Hence, we raise our TP to RM2.22 (RM2.10 previously) based on a narrower discount of 44% (47% previously) to its FD RNAV of RM4.00. Our TP implies FY15E net yield of 6.3%, which provides sufficient risk premium when compared to sizeable MREITs’ average net yield of 5.3%.

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 - 24 Nov 2015