FY17 CNP of RM401m and headline sales of RM1.30b both met expectations. Proposed first and final dividend of 15.0 sen was also in line. FY18E new launches for sale amount to RM1.37b as the group has RM2.0b (estimated market value) worth of inventories – we forecast FY18E sales of RM1.33b. Reiterate MARKET PERFORM with unchanged TP of RM2.50 as this defensive counter’s dividend yields are now on par with sizeable MREITs.

Within expectations. FY17 CNP of RM401m was within expectations at 104% of street’s full year estimates and 105% of ours - CNP calculation excludes RM90m one-off remeasurement gain upon acquiring the additional 35% in UOA Business Park. The group secured sales of RM1.30b (-12% YoY) which was in-line at 104% of our forecast of RM1.25b. Key sales drivers were Sentul Point and United Point which drove 71% of sales. Proposed first and final single-tier dividend of 15.0 sen was spot-on with our estimates.

Boosted by recurring income. QoQ, 4Q17 CNP rose by 13% largely due to a surge in Other Operating Income (comprises of mainly hospitality/rental income) which has grown significantly; the segment contribution rose by 58%. YoY, FY17 CNP was up by 7% in tandem with higher billings, stable development margins and improving recurring income streams. The group remains in a net cash position (0.07x).

Increasing pipeline of recurring income. For FY18, UOADEV has lined up RM1.37b worth of new launches for sale (refer overleaf). The company does not provide official sales target guidance but based on their new launches and inventories/WIPs, we expect a flattish sales growth trajectory. The group’s inventories have hit a record high of RM1.0b (at cost) – but we estimate a market value of about RM2.0b; while this maybe alarming, UOADEV has very strong holding power and had demonstrated its ability to realize its inventories at the ‘right time’. Note that we only expect Southbank Ph II and Danau Kota to be completed this year while the group will focus on realizing its inventories, so group margins may not be as strong as that of FY17. Notably, there is more emphasis on recurring income. Over 2018, the group plans to commence works on Bandar Tun Razak, Cheras (age- care facilities, RM300m GDV) and South Point, Bangsar South (RM220m GDV) but are likely to keep it for recurring income purposes. UOADEV investment properties in the books are at RM1.67b and rental income streams makes up close to 40% of the group’s EBIT.

Slightly higher FY18E CNP (+5%) post house-keeping while we also increase its recurring income contributions given the strong 4Q17 momentum. We also introduced FY19E CNP. Estimating FY18-19E sales of RM1.33b-RM1.39b. Unbilled sales of RM1.37b provide about one year’s visibility. FY18-19E NDPS is kept flat at 15.0 sen based on similar pay-outs to FY17.

Reiterate MARKET PERFORM with an unchanged TP of RM2.50 based on 40% discount (+0.5SD levels) to its FD RNAV of RM4.20 (*refer to FD RNAV table). We think our valuation level is fair considering its defensive attributes such as; (i) pure KL exposure with connectivity plays, (ii) high margins, (iii) net cash position, (iv) a more prominent recurring income stream from its hospitality and property investment assets, and (v) a dividend yield of 5.9% which is already almost on par with the sizeable MREITs’ average dividend yield of 5.8% (a less riskier property proxy compared to developers). Although we recommend MARKET PERFORM, we believe this may be a ‘flight to safety’ stock considering its defensive qualities.

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

Source: Kenanga Research - 22 Feb 2018