In line with our recent sector downgrade (to NEUTRAL), we downgrade UOA  Development  to  NEUTRAL  with  a  lower  TP  of  MYR1.84  (9.8% downside).  Our  2015  sales  forecast  of  MYR1.5bn-1.6bn  is  about  10% less than our estimated new sales of MYR1.7bn for 2014. While en bloc transactions are lacking to boost earnings, high exposure to the high-rise segment is generally unfavourable in a weak demand environment.  
 
Sector  downgrade.  We  have  downgraded  the  property  sector  to NEUTRAL. We  expect  property  transaction  volumes to decline  3-5% in 2015  on  the  back  of  slower  economic  growth  and  a  high  loan  rejection rate. We also anticipate property prices to stay flat as developers would have  difficulty  passing  on  incremental  costs  in  an  environment  of weakening demand. Buyers/investors and developers are likely to adopt a  wait-and-see  stance  in  monitoring  market  conditions  in  1H15,  as the impact  of  goods  and  services  tax  (GST)  kicks in.  For the  stocks  under our  coverage,  we  estimate  new  sales  to  drop  by  an  average  10-20% YoY vs -25% YoY in 2014 and +41% YoY in 2013.

Expect  MYR1.5bn-1.6bn  sales  in  2015. While  UOA  Development  will likely  end  2014  with  MYR1.7bn  in  sales,  we  expect  its  new  sales  to decline  by  10%  in  2015.  A  few  property  projects  have  been  delayed  to next year, including the Kepong V Phase 1 and Jalan Ipoh developments which  have  a  combined GDV of MYR600m. Although the company’s product offerings are mainly in mid-range to high-end housing, given that most of its projects are mostly in the high-rise segment, it will likely face challenges  in  drawing  sufficient  demand.  Meanwhile,  its  earnings  are unlikely to see a boost – as en bloc sales of buildings could be lacking. Currently,  UOA  Development  is  only  left  with  two  office  blocks  in Bangsar South Horizon, which it plans to keep as investment properties in the medium term.

Downgrade to NEUTRAL. Due to the challenging outlook for 2015, we downgrade  the  stock  to  NEUTRAL  (from  Buy).  Our  TP  is  reduced  to MYR1.84 (from MYR2.40), based on a larger 45% discount (from 30%) to RNAV.

Financial Exhibits

Financial Exhibits

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