KEY INVESTMENT HIGHLIGHTS

• 1HFY20 earnings in line

• Weak earnings in 2QFY20

• Earnings doubled on yearly basis

• New property sales at RM115m

• Earnings estimates maintained

• Maintain BUY with unchanged TP of RM2.12

1HFY20 earnings in line. UOA Development (UOADEV) 1HFY20 core net earnings of RM1475.5m came in within expectations, meeting 53% and 45% of our and consensus full year estimates respectively.

Weak earnings in 2QFY20. On sequential basis, UOADEV recorded lower core net earnings of RM25.9m (-79.6%qoq) as earnings in 1QFY20 were boosted by completion of United Point Residence while temporary halt on construction activities during Movement Control Order (MCO) has led to significantly lower progress billing in 2QFY20. Meanwhile, 2QFY20 core net income fell by 79.3%yoy, mainly due to delayed construction progress. Besides, the weaker earnings were also partly attributed to the decline in other income (-40%yoy) as a result of lower income from investment properties. That brought cumulative earnings in 1HFY20 to lower at RM147.5m (-20.4%yoy).

New property sales at RM115m. UOADEV registered minimal new property sales of RM27m in 2QFY20 compared to new sales of RM115m in 1QFY20 as sales activities were affected by MCO. That brings total new sales to RM142m in 1HFY20. United Point Residence is the biggest sales contributor, contributing 24% of new sales followed by Goodwood Residence (19%) and Aster Green Residence (19%). Looking forward, we maintain our new sales expectation of RM400m-RM500 for UOADEV as we expect new sales to pick up in 2HFY20 following the resumption of business activities. Meanwhile, unbilled sales decreased to RM577.8m in 2QFY20 from RM640.9m in 1QFY20.

Maintain BUY with unchanged TP of RM2.12. We maintain our earnings forecast for FY20/21F. We also maintain our TP for UOADEV at RM2.12, based on 28% discount to RNAV. We like UOADEV for its healthy balance sheet with net cash position which provides opportunity for land acquisition. We also like its strategy of focusing on development of mid-end residential and commercial projects within Klang Valley. The estimated dividend yield is also attractive at 6.5%. Hence, we maintain our BUY call on UOADEV

Source: MIDF Research - 27 Aug 2020