UOADEV’s 1HFY24 results met expectations. Its 1HFY24 core net profit rose 8% as stronger rental incomes and hospitality profits more than offset lower property development profits. We maintain our forecasts and TP of RM1.79 and upgrade our call to MARKET PERFORM (from UNDERPERFORM) thanks to recent share price correction that has factored in some softness in property sales.

UOADEV’s 1HFY24 core net profit of RM109.5m came in at 43% and 47% of our full-year forecast and the full-year consensus estimate, respectively. However, we consider the results within expectation as we expect stronger earnings during the remaining quarters as progress billings accelerate.

YoY, its 1HFY24 revenue declined by 8% due to to lower property sales, namely, from Laurel Residence and Aster Hill (with 72% and 57% take- up rates, respectively). However, its core net profit still came in flat driven by higher rental incomes and hospitality profits, which formed 45%-50% of its PBT level.

QoQ, its 1QFY24 top line rose 41%, due to the progressive recognition of the group’s ongoing development projects. This led to its core net profit inclining by 24%.

Outlook. UOADEV will continue to focus on mid-range residential developments. The construction progress of Aster Hill and Laurel Residences appears to be on track to meet their targeted completion by FY26. Meanwhile, the group’s Bamboo Hills Residences, with an estimated GDV of RM1.4b, was launched in July CY24 and has already achieved 38% take-up as of August CY24. The project is expected to be completed by 2029.

While earnings visibility is modest with unbilled sales of RM368.7m, this is supported by stable rental incomes, rising occupancy at its office premises and retail space (i.e., Bamboo Hills, Sphere). Additionally, the hospitality segment (Komune Living & Wellness) will benefit from the return of both 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 landbanks in urban locations, and (iii) a strong war chest backed by a net cash of RM200.6m as at 2QFY24. Upgrade to MARKET PERFORM from UNDERPERFORM as the recent share price correction has balanced out the risk-reward for the stock, granted by its stable investment income streams and consistent dividend payouts.

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 - 28 Aug 2024