9MFY19 CNP of RM286.9m came in slightly above our expectation, at 82%, due to lower-than-expected tax rates, but within consensus at 78%, of full-year estimate. 9MFY19 sales of RM583m came in below at 44%. No dividend, as expected. It still has RM690m worth of new launches for FY19 whilst continuing its inventory clearing efforts. Increase FY19E CNP by 4.6% on lower tax rate, and lower FY20E CNP by 5.3% post lowering FY19-20E property sales targets. Maintain OUTPERFORM and TP of RM2.15.

Slightly above our forecast on lower-than-expected tax rate. 9MFY19 CNP of RM286.9m came in slightly above our forecast, but within consensus at 78%. The deviation from our estimates was due to a lower-than-expected tax rate of 21.5% (vs. our expectations of 25.0%) due to deferred tax and certain items not being subjected to tax even though PBT was within our expectation at 80%. However, 9MFY19 property sales of RM583.3m were below, at 44%, due to the timing and bulk of launches which is usually backloaded in 2H. 9M19 sales were driven by Sentul Point Suite Apartments, South Link Lifestyle Apartments, Goodwood Residence, Desa Green, Southbank, United Point Residence and other inventories. No dividends, as expected.

Results’ highlights. QoQ, top-line declined by 16% as the previous quarter was a high base on revenue recognitions from Sentul Point Suite Apartments and United Point Residence. This caused bottom-line to decline by 19% on the back of slightly lower PBT margin (-1.5ppt) and despite lower effective tax rate of 16% vs. 24%. YoY, top-line was up by 13% on recognitions from United Point Residence, Sentul Point Suite Apartments, and South Link Lifestyle Apartments, while increased net interest income of RM9.4m (vs. RM5.4m losses) caused bottom-line to increase by 18%. The group remained in a strong net cash position.

Outlook. Upcoming new launches with GDV of RM690m are; (i) Bandar Tun Razak, Cheras (GDV RM300m) which has started construction and may be operator-run, (ii) Aster Green Residence @ Sri Petaling (GDV RM250m) launched in Nov 2019, and (iii) UOA Business Park Phase II (RM140m). The Group had recently launched Goodwood Residence@ Bangsar South (GDV RM600m) in Sept 2019 (end 3Q19) which is expected to contribute positively to FY19 sales on top of on-going projects and inventory clearing efforts.

Increase FY19 CNP by 4.6% to RM364m upon adjusting for lower tax rates, but lower FY20E CNP by 5.3% to RM332m. We lower our FY19-20E sales targets to RM865-963m (from RM1.32-RM1.4b) on challenging market conditions causing us to take a conservative outlook for future take-up rates. As a result, lower FY19 sales will result in FY20E CNP lowered by 5.3% from lower revenue recognitions, while FY19 CNP is up by 4.6% to RM364m driven by recognitions from previous launches but post adjusting for a lower FY19 effective tax rate of 22%, closer to current level (from our previous assumption of 25%). Unbilled sales of RM1.05b provide c.1-year visibility.

Maintain OUTPERFORM with an unchanged TP of RM2.15. Our TP remains unchanged despite switching to the more conservative P/BV valuation method (from RNAV) as a gauge to ascertain the trough valuations of property stocks amid the prevailing market down-cycle. Our TP is based on P/BV of 0.93x (@ -0.5SD of its 3-year historical band) on an adjusted BV/share of RM2.33 (after imputing a 40% discount to its latest available inventory level of completed properties). UOADEV remains an OP given its share price retracement (-10% YTD) despite being backed by attractive dividend (7.4% yield which offers a premium over sizeable MREITs with net yield of 4.9%) and a strong net cash position, while our TP represents a steep 50% discount to our FD SoP RNAV of RM4.31.

Source: Kenanga Research - 27 Nov 2019