UOADEV’s 1QFY23 results met expectations. While its sales were  off to a slow start, the momentum is expected to pick up over the  course of the year backed by a strong launch pipeline of >RM1.0b. Meanwhile, its rental and hospitality incomes from its investment properties are poised for further improvement as life returns to  normalcy. We maintain our forecasts, TP of RM1.75 and MARKET  PERFORM call.

Within expectations. 1QFY23 core net profit of RM46m met expectations, accounting for 21% each of both our full-year forecast  and the full-year consensus estimate.

As life returned to normalcy, 1QFY23 core net profit rose 83% YoY on  better revenue (+56%) from higher progressive billings and higher other  income (+46%) from rental and hospitality earnings derived from its  investment properties.

Despite 1QFY23 property sales of RM124m that only made up 18% of  our full-year assumption of RM700m, we deem it inline as UOADEV  has lined up >RM1.0b worth of property launches in FY23 which should  boost its sales during the remaining quarters.

YTD, it has launched the first block of Aster Hill (Sri Petaling) with a  GDV of RM240m in Feb 2023. For the rest of the year, it intends to  launch (i) the second block of Aster Hill (RM240m GDV), (ii) Vertical  Offices in Bangsar South (RM1.3b GDV; whereby c.RM430m would be  for sale and the rest kept as investment properties), (iii) Desa 3 SemiDs (RM18m GDV), and (iv) Bamboo Hills high-rise (GDV to be  confirmed). As at 1QFY23, its unbilled sales stood at RM226m from Laurel Residence and Aster Hill.

We maintain our forecasts for FY23 and FY24, backed by unchanged  sales assumptions of RM700m and RM850m, respectively.

Similarly, we maintain our TP of RM1.75 based on 55% discount to  RNAV, lower than the 60%-65% discount ascribed on peers to reflect  UOADEV’s land banks in matured locations making them highly  monetizable. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

We like UOADEV for: (i) its strategy to focus on mid-priced residential  products amidst a soft property market, (ii) the highly sought-after  addresses of its land banks in urban locations, (iii) the recovery of its  hotel and MICE operations, and (iv) a strong war chest (net cash of  RM2.2b) for opportunistic M&As and land acquisitions. However, owing  to the lack of launches over the pandemic, its unbilled sales has come  off substantially to a low of RM226m (vs. pre-pandemic levels  of >RM1b). Maintain MARKET PERFORM.

Risks to our call include: (i) a prolonged slowdown in the property,  hospitality and MICE sectors, (ii) rising mortgage rates eroding  affordability, and (iii) changes to urban development policies in the  Klang Valley.

Source: Kenanga Research - 23 May 2023