INVESTMENT HIGHLIGHTS

• 9MFY16 broadly within expectations

• Robust new sales of RM1.15b in 9MFY16

• Earnings growth to resume in FY17

• Upgrade to BUY with unchanged TP of RM2.68

9MFY16 broadly within expectations. UOA Development Berhad (UOADEV) 9MFY16 core net income of RM275.2m was broadly within our and consensus expectations, at 68% and 74% of our and consensus full year estimates. As expected, no dividend was declared for the quarter as UOADEV typically declare dividend in the final quarter.

Robust new sales of RM1.15b in 9MFY16. UOADEV registered encouraging new sales of RM538m for 3QFY16 as compared to new sales of RM442m in 2QFY16, bringing 9MFY16 new sales to RM1.15b (9M2015: RM708m). In 3QFY16, United Point in Kepong and Sentul Point residence in Sentul contributed >90% to total new sales. The decent new sales in 9MFY16 of RM1.15b are within our full year new sales expectation. Looking ahead, management is targeting to launch projects with total GDV of RM1.6b in FY17 with the key project launch being The Sphere in Bangsar South (GDV: RM1.2b). UOADEV plans to redevelop The Sphere in Bangsar South into two blocks of residences above the retail area. Another project planned for launched in FY17 includes Desa Business Suite in Taman Desa with GDV of RM300m.

Earnings growth to resume in FY17. UOADEV’s 3QFY16 core net profit normalized from the high base in the previous quarter after declining by 56%qoq as previous quarter earnings were buoyed by profit recognition from Desa Green Serviced Apartments which was completed in 2QFY16. Meanwhile, cumulative core net income of RM275.2m declined by 10%yoy, in tandem with the lower topline (-36%) due to lower profit recognition from slow property sales of RM800m in FY15. Recall that UOADEV delayed its key property launches in FY15 due to changes in strata title act. Profit recognition of UOADEV in 9MFY16 was mainly derived from its on-going development projects namely Desa Green Serviced Apartments, South View Serviced Apartments, and Southbank Residence. On a separate note, unbilled sales increased to RM1.5b in 3QFY16 from RM1.2b, increasing earnings visibility to 0.9 years (from 0.7). Earnings outlook for UOADEV is expected to be positive in FY17 due to the strong sales secured in FY16.

Upgrade to BUY from Neutral with unchanged TP of RM2.68. We maintain our earnings forecast for FY16/17. We upgrade UOADEV to BUY with unchanged TP of RM2.68 as we see value emerging in UOADEV after the recent fall in share price. Fundamental of UOADEV remains solid with strong property sales anticipated in FY16 which underpinned by the property launches at affordable price range where demand is supported by genuine home buyers. In addition, sturdy balance sheet of UOADEV with net cash position would continue to enable it to have more financial muscle to weather the slowdown in property market. Meanwhile, dividend yield of UOADEV is attractive at 6.3%.

Source: MIDF Research - 25 Nov 2016