1Q16 CNP of RM96.1m met expectations (27% of both market/our estimates). Quarter sales of RM170m are deemed broadly in-line against our FY16E sales of RM1.0b due to timing of launches from mid-2016 onwards. No dividends, as expected. Earnings estimates remain unchanged. Maintain MARKET PERFORM and TP of RM2.22.

Within expectations.1Q16 CNP of RM96.1m met expectations, being 27% of both street’s and our FY16E CNP estimates. Sales for the period of RM170mare deemed broadly in-line even though it only filled 17% of our FY16E sales target of RM1.0b (+29% YoY). This is due to their major launches, namely United Point (a.k.a. Kepong V) and DesaSentul II, being timed towards mid-2016 and 2H16, respectively. Key sales drivers for 1Q16 were largely driven by its new project, Danau Kota (64% of sales), while the remaining were driven by on-going projects. No dividends were proposed, as expected.

Exceptionally strong margins which are likely to normalize in coming quarters. Although revenue dipped by 61% QoQ, CNP increased slightly by 3% QoQ largely due to property pretax margins expanding by 33.1ppt to 56.6%. This was largely due to the low-base effect margins while this quarter saw net positive impact from project book closure of certain completed projects and write-downs; while the exact amount has not been disclosed, we estimate property pretax margins would be more normal at c.45% after stripping-off this effect. 1Q16 CNP rose by 22% YoY due to the aforementioned reasons while there were proportionately less construction contributions which typically drag property margins down coupled with higher billings from associate projects (e.g. Kencana Square). The company remains in a net cash position of 0.14x.

United Point a.k.a. Kepong V to be launched soon! Over FY16, the group is expected to launch RM3.23b worth of new projects (DanauSetapak, United Point a.k.a. Kepong V, DesaSentulII) by phases which will also spill into FY17/FY18. The exact sizes of launches for each project over FY16E have not been revealed yet. However, we gather that the group has just received its APDL for the United Point project and is previewing c.1000 units (average unit prices likely at RM600-800k/unit)with expected launch soon. The Jalan Ipoh development (GDV: RM6.0b) or the ‘next Bangsar South’ will likely be launched in FY17 due to planning reasons.

No changes to earnings. The group does not provide official sales target and we are maintaining our assumptions.Unbilled sales of RM1.1b provide slightly more than 1 year visibility.

Maintain TP of RM2.22 based on a discount of 44% (sector average: 53%) to its FD RNAV of RM4.00. Our TP implies FY16E net yield of 6.3%, which provides sufficient risk premium when compared to sizeable MREITs’ average net yield of 5.0%. UOA’s share price has held up well (+6.8% YTD) vs. the KLPRP Index returns of -3.7% YTD and big cap developers’ (>RM3b mkt cap) average of +0.8%. While upside is limited, UOADEV is still defensive given its: (i) strong net cash position and strong dividend yields, (ii) pure exposure in Kuala Lumpur, and (iii) rich development margins, which is one of the best in the industry and a big positive in light of the lukewarm prospects for the property market. Downside risks to our call include weaker-than-expected property sales, higher or lower than expected sales and costs, negative real estate policies, tighter lending environments.

Source: Kenanga Research - 26 May 2016