INVESTMENT HIGHLIGHTS

• 9MFY17 earnings within expectations

• Resilient earnings in 9MFY17

• 9MFY17 new property sales at RM924.2m

• Expect South Link project to enjoy good take up rate

• Upgrade to BUY (from Neutral) with a unchanged TP of RM2.80

9MFY17 earnings within expectations. UOA Development Berhad (UOADEV) 9MFY17 core net income of RM299.4m came in within expectations, making up 74% and 78% of our and consensus full year forecast respectively.

Resilient earnings in 9MFY17. UOADEV’s 3QFY17 core net income fell 45%qoq to RM90.4m as earnings normalized from high base in 2QFY17 which was boosted by earnings recognition from South View Serviced Apartments (completed in 2QFY17). On yearly basis, 3QFY17 core net income climbed 65%yoy, bringing cumulative earnings to RM299.4m (+8.8%yoy). The higher earnings were driven by progressive recognition of the development projects from Southbank Residence, United Point, Sentul Point, Danau Kota Suite Apartment. Besides, sales of completed projects (Desa Green and Vertical Business Suites) also helped in earnings growth. Meanwhile, 3QFY17 unbilled sales stood at RM1.41b (58% contributed by United Point while 38% contributed by Sentul Point), flattish against unbilled sales of RM1.39b in 2QFY17, providing earnings visibility of 1.4 years.

9MFY17 new property sales at RM924.2m. UOADEV registered new property sales of RM311.2m in 3QFY17 (3QFY16 new sales: RM538m), flattish against new sales of RM309.8m in 2QFY17. That brought cumulative new sales in 9MFY17 to RM924.2m, lower than new sales of RM1.15b in 9MFY16. Recall that last year new sales were boosted by Sentul Point (GDV: RM1.5b) and United Point (GDV: RM1.5b). Meanwhile, bulk of the new sales in 9MFY17 was contributed by Sentul Point (44%) and United Point (41%) due to on-going launches of the two projects. Note that UOADEV launched the final blocks of the two projects in June/July. The cumulative new sales in 9MFY17 is slightly below our expectation after it makes up 64% of our full year new sales target of RM1.45b as new launches were scheduled towards year end.

Expect South Link project to enjoy good take up rate. Preview of South Link (GDV: RM550m) in Bangsar South has commenced while official launch is expected to take place by year-end. Note that South Link Lifestyle Apartments comprises 1,422 units of freehold serviced apartments with two storey of retail. We expect take up rate of South Link to be decent in view of the prime location of the project in Bangsar South and affordable indicative price per unit starting from ~RM350k. Meanwhile, other launches in the pipeline include Desa Commercial Centre (GDV: RM300m), Bandar Tun Razak development in Cheras (GDV: RM300m) and South Point in Bangsar South (GDV: RM220m).

Upgrade to BUY (from Neutral) with an unchanged TP of RM2.80. We are revising our FY17 sales target from RM1.45b to RM1.25b as sales contribution from South Link is expected to kick in from FY18 onwards. Correspondingly, our earnings forecast for FY17/18 were revised downwards marginally by 1.5%/2.5%. Our target price for UOADEV is unchanged at RM2.80, based on 10% discount to RNAV. Nevertheless, we are upgrading UOADEV to BUY (from Neutral) as the recent weakness in share price makes dividend yield of UOADEV more attractive. At last closing price, dividend yield is estimated at 6.1% based on our dividend forecast of 15sen/share. Balance sheet of UOADEV is healthy at net cash position while property sales prospect will continue to be underpinned by launches of urban-based affordable priced properties.

Source: MIDF Research - 22 Nov 2017