Proposed acquisition of 2.39 freehold commercial land in the Bangsar South area for RM81.1m. No estimated GDV provided, but we estimate a potential GDV of RM1.20b which will raise our FD RNAV by 3%. Post-acquisition: the group remains in a net cash position. The news is not entirely surprising while we are positive on the acquisition. No changes to earnings. Reiterate MARKET PERFORM with a higher TP of RM2.63.

Landbanking in Bangsar South. UOADEV proposed to acquire 2.39 ac freehold commercial land in the Bangsar South area for RM81.1m (RM778psf) from Suileem Realty S/B. The land can be used for commercial or service apartments - it already has an existing Development Order, but UOADEV will likely resubmit for changes. We gather that the land is located behind UOADEV?s on-going South View project.

Positive on the acquisition. It has been a while since the group?s last land acquisition and we welcome the GDV replenishment in UOADEV?s home turf, Bangsar South. Also, the group is firmly in a net cash position with plenty of room for landbanking, and thus, we are not entirely surprised. Post-acquisition, UOADEV will remain in a net cash position of 0.09x (from 0.11x) in FY17E.

Potential GDV of RM1.20b, which would increase our FD RNAV by 3% to RM4.11. Management has not provided any GDV or project details as it is still in preliminary planning stages. UOADEV has another piece of undeveloped land adjacent to South View measuring 1.92ac with GDV of RM1.21b, implying a GDV/ac of RM583m/ac although we note that the site has frontage of Federal Highway (we did not use South View GDV/ac as a comparison as it was launched much earlier). Assuming a slightly more conservative GDV/ac of RM500m/ac, the said land could have a potential GDV of RM1.20b. There was no proper comparable land available to us, but we reckon the land price is attractive as long as the project has a minimum GDV of RM810m; this would imply land cost-to-GDV ratio of 10%, which would enable the group to sustain their current gross margins.

FY17 launch pipeline of RM1.69b comprising of last phases of Sentul Point (GDV: RM500m) and United Point (GDV: RM500m) as well as new projects like Bandar Tun Razak, Cheras (RM300m) project and the affordable homes in Selayang (RM90m). It also includes a potential en bloc sale from the nearly completed Desa Commercial Center (RM300m). Expected project deliveries in FY17 include SouthView, Southbank, DesaSentul Phase 1 and Suria North Kiara.

No changes to earnings as we expect the launch could be scheduled towards end FY18 to early FY19.

Reiterate MARKET PERFORM with a higher TP of RM2.63(RM2.56 previously) based an unchanged discount of 36% (slightly above +1SD) to a higher FD RNAV of RM4.11 due to the above reasons. At our TP, its FY17E net yields are at 5.7% which is becoming a thin enough spread to the less riskier sizeable MREITs whose average net yields are at 5.1%. While upsides are capped, the stock is worth holding for its yield stability given the company?s defensive nature (pure KL exposure with connectivity plays, high development margins and a strong net cash position).

Risks include weaker/stronger-than-expected property sales, margin fluctuations as well as changes in real estate policies and/or lending environments.

Source: Kenanga Research - 26 May 2017