• 1HFY17 earnings within expectations

• Earnings picking up

• 1HFY17 new property sales at RM613m

• Maintain Neutral with a revised TP of RM2.80

1HFY17 earnings within expectations. UOA Development Berhad (UOADEV) 1HFY17 core net income of RM210.7m came in within expectations, making up 51% and 55% of our and consensus full year forecast respectively.

Earnings picking up. UOADEV’s 2QFY17 core net income surged by 282%qoq to RM165.7m, driven mainly by earnings recognition from South View Serviced Apartments which were completed during the quarter. Meanwhile, 2QFY17 earnings climbed 33%yoy, driven by earnings recognition from South View Serviced Apartments and higher progressive billings of United Point, Sentul Point, and Desa Sentul. That brought cumulative earnings in 1HFY17 to RM210.7m (-4%yoy). The marginally weaker earnings were due to soft quarter in 1QFY17 which was dragged down by lower progressive earnings recognition. Looking ahead, we expect earnings to pick up in 2HFY17 due to higher progress billing of United Point and Sentul Point. Note that 1HFY17 unbilled sales stood at RM1.39b (56% contributed by United Point while 24% contributed by Sentul Point), providing earnings visibility of 1.4 years.

1HFY17 new property sales at RM613m. UOADEV recorded new property sales of RM309.8m in 2QFY17, bringing total new sales in 1HFY17 to RM613m (at 38% of our full year new sales target of RM1.6b). The total new sales in 1HFY17 are marginally higher than new sales of RM611.9m in 1HFY16. Bulk of the new sales in 1HFY17 was contributed by Sentul Point (47%) and United Point (45%). Meanwhile, UOADEV has launched the final blocks of the two projects in June/July which we expect it to drive sales momentum going forward. Looking ahead, UOADEV outlined launches with total GDV of RM1.46b for 2HFY17. New launches in pipeline include Desa Commercial Centre (GDV: RM300m), Bandar Tun Razak development in Cheras (GDV: RM300m), South Link in Bangsar South (RM550m), and South Point in Bangsar South (RM220m). Note that South Link and South Point are the project being planned for its recently announced land acquisition in Bangsar South.

Maintain Neutral with a revised TP of RM2.80. We revised our FY17 sales target for UOADEV to RM1.45b from RM1.6b as most of the new launches of UOADEV have been scheduled to end of FY17. Correspondingly, our earnings forecast for FY17/18 were adjusted marginally downwards by 1.3%/2%. Nevertheless, our target price for UOADEV is revised higher to RM2.80 from RM2.75, after inputting NPV from South Link and South Point projects. Our valuation is unchanged at 10% discount to RNAV. We maintain Neutral on UOADEV due to its flattish new property sales outlook. Balance sheet of UOADEV is healthy at net cash position while dividend yield is estimated at 5.8%.

Source: MIDF Research - 24 Aug 2017