INVESTMENT HIGHLIGHTS

• FY16 earnings broadly within expectation

• Property sales increased 77% to RM1.42b in FY16

• Looking forward to a better FY17

• Maintain BUY with a revised TP of RM2.75

FY16 earnings broadly within expectation. UOA Development Berhad (UOADEV) FY16 core net income of RM374m is broadly within expectation as it makes up 99% of consensus and 92% of our expectation. Dividend of 15sen per share was proposed, translating into decent dividend yield of 5.9%.

Property sales increased 77% to RM1.42b in FY16. UOADEV recorded new sales of RM270m in 4QFY16, bringing total new sales to RM1.42b in FY16 which represent a 77% increase from new sales of RM800m in FY15. The strong property sales in FY16 were within our expectation, making up 95% of our sales target of RM1.5b. Half of new sales in FY16 were contributed by United Point residence in Kepong (GDV: RM1.5b) while Sentul Point residence in Sentul (GDV: RM1.5b) contributed 25% to the new sales. The two projects were well received, underpinned by the affordable pricing of the properties. Looking ahead, UOADEV will launch the remaining units of the two projects in addition to its new projects – The Sphere in Bangsar South (GDV: RM1.2b) and Desa Center in Taman Desa (GDV: RM300m). As such, we are estimating UOADEV to record new sales of RM1.6b for FY17 which implies a 10% growth.

Looking forward to a better FY17. UOADEV’s 4QFY16 core net profit increased 69%qoq to RM92.9m due to higher progress billing. That brought cumulative core net earnings in FY16 to RM373.9m. Note that we have excluded fair value gains of RM400m on investment properties and deferred RPGT of RM97m in our core net income calculations. FY16 core net income was 7% lower on year due to lower profit recognition from low property sales of RM800m in FY15. Looking ahead, we expect earnings to grow 9.7%yoy in FY17, mainly due to progressive profit recognition of its strong sales in FY16. On a separate note, 4QFY16 unbilled sales stood at RM1.46b (a marginal decline from RM1.51b in 3QFY16), providing earnings visibility of 1.5 years.

Maintain BUY with a revised TP of RM2.75. We fine-tune our FY17 earnings forecast and introduce our FY18 core net income forecast of RM452m. Our TP for UOADEV has been revised upwards to RM2.75 from RM2.68 after we increase the value of The Sphere project in our RNAV valuation as UOADEV is redeveloping The Sphere (retail building) in Bangsar South into two blocks of residences above the retail area. The discount to RNAV is unchanged at 10%. We like UOADEV for its decent property sales where launch of its properties at affordable price range is well received by genuine home buyers. Besides, we also like its healthy balance sheet with net cash position and decent dividend yield of 5.9%.

Source: MIDF Research - 23 Feb 2017