UOADEV’s 1HFY23 results met expectations. The expected resurgence in tourism activity and new project launches are set to bolster earnings. That said, the group’s more modest development pipeline and high inventories may deter investors in comparison to other developers. Maintain MARKET PERFORM with a slightly higher SoP-TP of RM1.77 (from RM1.75) on adjusted RNAV inputs.

1HFY23 within expectations. UOADEV’s 1HFY23 core net profit of RM108.2m met expectations, accounting for 50% and 52% of our full year forecast and consensus estimates, respectively.

YoY, its 1HFY23’s revenue grew by 4% attributed to the gradual recognition of revenue resulting from ongoing development projects and the sale of existing stocks. This also improved gross margins to 43.4% (+2.0ppts) thanks to its better product mix. Meanwhile, other income (+54%) saw a strong boost from recovering rental and hotel operations. The group also benefited from higher interest rates, leading to an increase in interest income (+60%). Overall, excluding one-off impairment adjustments, 1HFY23 core net profit registered at RM108.2m (+56%).

Outlook. The group’s strategic focus on mid-end residential projects persists, with ongoing sales efforts for The Goodwood Residence and Laurel Residence ensuring their continued market success. In 2HFY23, the group aims to launch three new projects, namely Desa 3, Bamboo Hill Residence, and Duo Tower. Additionally, the construction of Laurel Residence and Aster Hill appears to be on track to their FY26 timeline, backing the group’s unbilled sales of RM285.2m. On the other hand, we expect rental income streams to remain supported from rising tenancy in its office spaces and higher retail activities (i.e. Bamboo Hills, Sphere) while its hospitality division could improve with the return of domestic and international guests.

Forecast. Post results, we maintain our FY23F earnings but slightly raise our FY24F earnings by 4% as we account for additional contributions from new upcoming launches (i.e. Duo Tower at Bangsar South).

Maintain MARKET PERFORM with a slightly higher SoP-TP of RM1.77 (from RM1.75). Our RNAV inputs are mostly unchanged save for the inclusion of Duo Tower into our RNAV computation, which is based on an unchanged 55% discount (see Page 2). This is below the industry average of 60%-65% which we believe is justified given the group’s focused product pipelines. Also helping is its strong net cash position (c.RM2.3b). That said, current share price indicates that the stock could be fairly valued for now. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

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 - 24 Aug 2023