We raise UOA Development’s FV to MYR2.62, as we revise upwards our take-up  rate  and  margin  assumptions.  The  recent  preview  of  two projects indicates strong underlying demand for mid-range properties, which it  is currently focusing on. Given the response, the company can easily  chalk  up  >MYR600m  sales  from  these  two  projects  alone.  Its MYR774m  net cash  is a solid war  chest for landbanking and dividends. BUY.

• Encouraging  sales  prospects.  We  recently  hosted  a  corporate luncheon  with  UOA  Development  and  are  turning  more  positive  on  its 2014  sales  prospects.  Unbilled  sales  stand  at  MYR1.3bn,  and  2Q  will see the Le Yuan’s  and Desa 8’s  handover.  It  is now focusing more on mid-range  properties  and  all  its  pipeline  launches  this  year  (worth MYR2bn) are priced <MYR1m/unit.
• South  Bank’s  and  Desa  Sentul’s  strong  bookings  indicate  high underlying  demand.  The  South  Bank  @  Old  Klang  Road  (GDV: MYR500m)  and  Desa  Sentul  (MYR340m)  projects  had  their  previews last month.  Despite the    weak sentiment  in the  physical market, to our surprise,  bookings for both  achieved >80%,  signalling  strong underlying demand  for  mid-end  properties.  We  believe  the  encouraging  response was largely  on  solid branding,  decent pricing, location and  the growing community in the vicinity. The South Bank serviced apartments (built-up:900 sqf) were initially priced at MYR600 psf. The price was subsequently raised to MYR750 psf  in view of the overwhelming demand. Meanwhile, Desa Sentul (built-up: 800, 1,000 and 1,100 sqf) is priced at MYR500 psf and,  unofficially,  the  units  are  already  fully  taken-up.  Assuming  an eventual take-up rate of 75% for both, UOA  Development  will safely bag MYR1bn in sales, including MYR350m sales secured in 1Q. We expect it to achieve MYR2bn sales in 2014, ie the same level as last year.  
• MYR774m  net  cash  a  solid  war  chest  for  landbanking  and dividends.  UOA  Development’s  solid  net  cash  should  ensure sustainable  dividends  for  investors  and  provide  the  company  with flexibility in exploring landbanking opportunities.
• Raise FV to MYR2.62. In view of the pickup in sales, we revise upwards our take-up rate  and margin assumptions for some of its  projects. These are  expected  to  have  an  impact  on  our  earnings  forecast  from  FY16 onwards  only.  Therefore,  our FV is  raised to MYR2.62  (from MYR2.45), based on an unchanged 25% discount to RNAV. Maintain BUY.

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SWOT Analysis

Company Profile

UOA  Development  is  a  Klang  Valley-based  developer.  The  company  specialises  in  building  high-rise  residential  and  commercial developments. Its flagship development at Bangsar South has seen strong en bloc transactions.

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Source: RHB