UOAD’s  2Q14  results  were  below  expectations.  New  property  sales achieved  MYR362m  in  2Q  (vs  MYR336m  in  1Q).  We  concur  with management that 3Q sales could  be stronger as sales from South View and Desa Sentul kick in.  Based on the scheduled launches,  it  will likely achieve MYR1.5bn-1.6bn sales in 2014.  We cut FY14-15 earnings by 12-15%. Share price has largely priced in the weak sales. Maintain BUY.

Below  expectations.  UOAD’s  2Q14  results  came  in  below  our  and market  expectations  on  an  annualised  basis.  Turnover  was  mainly contributed by Desa Green, Le Yuan Residence, Vertical Office Suites and  South  View.  A  fair  value  gain  on  the  Vertical  Carpark  Phase  1amounted to MYR39m was recognised during the quarter.

MYR362m new sales in 2Q. 2Q14 new property sales picked up slightly to  MYR362.4m,  vs  MYR335.5m  in  1Q,  bringing  1H14  sales  to MYR697.9m.  The bulk of the sales was mainly coming from South View (GD:  MYR426m),  followed  by  Southbank  Residence  (MYR113m), which was launched in 2Q, and Kencana Square (MYR32m). We expect 3Q  sales  to  come  in  stronger  as  bookings  in  South  View  (MYR600m)and  Desa  Sentul  Phase  1  (MYR340m)  are  converted  into  sales  (after signing the sales and purchase agreement). Both projects have received encouraging  take-up/bookings  of  over  70%  thus  far.  In  the  pipeline,UOAD plans to roll out the Desa Business Suites (MYR300m), Kepong V Phase  1  (MYR300m)  and  Jalan  Ipoh  projects  (MYR300m).  Given  the 
launching  schedule,  we  think  UOAD  will  likely  achieve  MYR1.5 -1.6bn sales  for  the  year.  This  is  a  20%  down  from  our  previous  forecast  of MYR2bn, and will affect upcoming earnings.

Forecast. We cut our  FY14-15 earnings  by 12-15% in view of the weak core  numbers.  According  to  management,  the  retail  component  at Vertical will be revalued in 4Q, thus  making  up the short fall in earnings.Unbilled  sales  increased  to  MYR1.6bn  (from  MYR1.45bn  in  1Q14), mainly coming from South View, Vertical Office Suites and Scenaria.

Maintain BUY.  Due to slower sales, we lower our FV to MYR2.45 (from MYR2.62)  based  on  a  larger  30%  discount  (from  25%)  to  RNAV.  We think the share price has largely priced in the weak sales numbers,  and hence  we  maintain  our  BUY  rating.  Dividend  yield  currently  looks attractive at about 6%, supported by a solid net cash of MYR657m.

Source: RHB