KEY INVESTMENT HIGHLIGHTS

• 9MFY20 earnings above our expectation

• Earnings helped by lower tax expenses

• 9MFY20 net property sales at RM234.2m

• Earnings estimates revised upwards

• Maintain BUY with unchanged TP of RM1.91

9MFY20 earnings above our expectation. UOA Development (UOADEV) 9MFY20 core net income of RM242.4m came in within consensus expectation but above ours at 88% of our full year estimate. The positive deviation could be attributed to the lower than expected tax expenses and lower than expected expenses. Note that we have excluded fair value adjustment on investment properties in our core net income calculations.

Earnings helped by lower tax expenses. Sequentially, 3QFY20 core net income was higher at RM95.9m (+270%qoq) despite marginally lower topline (-4.6%qoq) as earnings were mainly helped by positive tax expenses as a result of higher deferred tax. We gather that the higher deferred tax was due to the proposed disposal of UOA Corporate Tower which is expected to be completed in December 2020. Meanwhile, 9MFY20 core net income was lower at RM242.m (-15.6%yoy) as earnings were dragged by temporary halt on construction activities during Movement Control Order (MCO) in 2QFY2 and decline in rental income from investment properties. Nevertheless, the earnings decline was partially cushioned by lower administrative expenses (-4.3%yoy) and lower other expenses (-25.3%yoy). Looking ahead, earnings in 4QFY20 are expected to be boosted by disposal gain of UOA Corporate Tower.

9MFY20 net property sales at RM234.2m. UOADEV registered new property sales of RM119m in 3QFY20, bringing cumulative new property sales to RM234.2m in 9MFY20. Aster Green Residence is the biggest sales contributor, contributing 31% of new sales followed by Goodwood Residence (16%) and United Point Residence (15%). New sales in 9MFY20 are slightly below our new sales expectation of RM400m-RM500 for UOADEV. Hence, we revise our FY20 new sales target for UOADEV to RM350m as we expect sales momentum to be affected by the reimposition of CMCO. Meanwhile, unbilled sales decreased to RM402.2m in 3QFY20 from RM577.8m in 2QFY20.

Maintain BUY with unchanged TP of RM1.91. Our FY20/21F earnings forecasts are revised by +8.8%/+12.4% after factoring in the lower tax expenses and lower expenses which cushioned the impact of lower new sales expectations. We maintain our target price for UOADEV at RM1.91, based on 35% discount to RNAV. We continue to like their healthy balance sheet and attractive dividend yield which is estimated at 6.8%. Besides, we expect earnings in 4QFY20 to be strong on the back of disposal gain of UOA Corporate Tower. Hence, we maintain our BUY call on UOADEV

Source: MIDF Research - 26 Nov 2020