INVESTMENT HIGHLIGHTS

• 9MFY18 earnings slightly below expectations

• Earnings dragged by higher expenses

• 9MFY18 new property sales at RM1.14b

• Maintain BUY with a revised TP of RM2.50

9MFY18 earnings slightly below expectations. UOA Development (UOA DEV) 9MFY18 core net income of RM242.5m came in slight below our and consensus expectations, making up 68% of our and consensus full year estimates respectively. The negative deviation could be mainly attributed to the higher-than-expected cost and expenses in 3QFY18.

Earnings dragged by higher expenses. UOADEV recorded marginally lower core net income of RM92.2m (-1.1%yoy) in 3QFY18 despite revenue grew by 15%yoy as earnings were dragged by higher expenses (+22%yoy) and higher cost of sales (+71%yoy). Note that earnings in 3QFY18 were mainly driven by progressive recognition of the on-going projects (Sentul Point, United Point Residence and South Link) and sales of completed office and residential units. That brought cumulative earnings in 9MFY18 to RM242.5m, declining by 21.2%yoy. Earnings were lower in 9MFY18 as last year earnings were boosted by cost adjustment arising from completion of South View Serviced Apartments. Meanwhile, unbilled sales were flattish at RM1.63b in 3QFY18, providing earnings visibility of 1.6 years.

9MFY18 new property sales at RM1.14b. UOADEV recorded new property sales of RM333m in 3QFY18, bringing cumulative new property sales to RM1.14b in 9MFY18. The new sales in 9MFY18 were higher than new sales of RM924m in 9MFY17. South Link Lifestyle Apartment in Bangsar South is the biggest new sales contributor by contributing 48% of total new sales followed by United Point Residence (17%) and Sentul Point (13%). Meanwhile, key launches in FY19 include Goodwood Residence (formerly known as The Park Residence II) in Bangsar South and project in Sri Petaling with GDV of RM1b.

Maintain BUY with a revised TP of RM2.50. We revise downwards our FY18/19 earnings forecast by 7.2%/8.7% to factor in the higher expenses. We revise our TP to RM2.50 from RM2.80 as we widen our RNAV discount to 15% from 10%. We like UOADEV as we remain sanguine on its strategy of launching urban-based affordable priced properties in Klang Valley which are favoured by property purchaser. Dividend yield is attractive, estimated at 7%.

Source: MIDF Research - 28 Nov 2018