UOADEV’s 1QFY24 results met expectations. Its 1QFY24 core net profit rose 8% as stronger rental incomes and hospitality profits more offset lower property development profits. We maintain our forecasts and TP of RM1.79 but downgrade our call to UNDERPERFORM from MARKET PERFORM after the run-up in its share price.

UOADEV’s 1QFY24 core net profit of RM48.9m came in at only 19% and 20% of our full-year forecast and the full-year consensus estimate, respectively. However, we consider the results within expectations as we expect stronger earnings during the remaining quarters as progress billings accelerate.

YoY, its 1QFY24 revenue declined by 18% due to to lower property sales, namely, from Laurel Residence and Aster Hill (with 71% and 37% take-up rates, respectively). However, its core net profit rose 8% driven largely by higher rental incomes and hospitality profits.

QoQ, its 1QFY24 top line contracted 36%, we believe, due to a seasonally low period for property sales. Its core net profit only declined by 17%, thanks largely to a lower effective tax rate.

Outlook. UOADEV will continue to focus on mid-range residential developments. The construction progress of Aster Hill and Laurel Residences seems to be on track to meet their targeted completion by FY26. Meanwhile, the group’s Bamboo Hills Residences with estimated GDV of RM1.4b is on track to be launched in 1HCY24 and expected to be completed in CY29.

Its earnings visibility will be underpinned by unbilled sales of RM311.7m, coupled with stable rental income streams, supported by rising occupancy at its office premises and retail space (i.e., Bamboo Hills, Sphere). Additionally, the hospitality segment (Komune Living & Wellness) will be buoyed by the return of domestic and international guests.

Forecasts. Maintained.

Valuations. We also maintain our TP of RM1.79 based on a 55% discount to its RNAV which is in-line with the industry average. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment case. We like UOADEV for: (i) its strategy to focus on mid- priced developments amidst a soft property market, (ii) the highly sought- after locations of its land banks in urban locations, and (iii) a strong war chest backed by a net cash of RM226.9m as at 1QFY24. However, its relatively prudent growth strategy may not appeal to investors with a short investment horizon. Downgrade to UNDERPERFORM from MARKET PERFORM after the recent run-up in its share price.

Risks to our call include: (i) a stronger-than-expected recovery in the property, hospitality, and MICE sectors, (ii) declining mortgage rates boosting affordability, and (iii) less restrictive urban development policies in the Klang Valley.

Source: Kenanga Research - 29 May 2024