3Q15 results surpassed our and market expectations. We upgrade UOAD to BUY with a higher MYR2.40 TP (13% upside), as we expect new sales to grow 50% next year, while earnings upgrade and solid balance sheet should support attractive dividend payouts. We raise our FY15-17 earnings forecasts by 9-15%, as the completion of various projects will likely spur earnings momentum.

Exceed expectations. UOA Development’s (UOAD) 3Q15 results beat ours and consensus estimates. The strong profit was primarily due to the completion of Vertical Office Suites. Note that, based on the historical trend, UOAD’s numbers typically see a spike when projects are handed over.

MYR204.6m new sales in 3Q. 3Q new sales reached only MYR204.6m, vs MYR358m in 2Q, bringing 9M new sales to MYR708.4m. As there were no new launches during the quarter, key sales contributors were mainly the higher take-up rates from SouthBank Residence (96% from 86% in 2Q) and Scenaria (86% from 81%). We expect UOAD to close roughly MYR1bn sales for the full year, as take-up rates for the existing projects continue to improve. Looking ahead, we expect 2016 new sales to grow much stronger to around MYR1.5bn, on the back of MYR3.2bn worth of new launches. These include Desa Sentul Phase II (GDV: MYR1.5bn), Kepong V (GDV: MYR1.5bn), and Danau Kota Suite Apartment in Setapak (GDV: MYR230m). Timing should also be better as market sentiment will likely start recovering after a volatile 2015. Demand for these projects is expected to be good given their locations.

Forecast. We raise our FY15-17 earnings forecasts by 9-15%, as Scenaria, Desa Green, and Kencana Square shops and offices will be completed progressively from 4Q, hence 4Q15-1H16 earnings should see the effect of project handovers. Meanwhile, unbilled sales declined slightly to MYR1.5bn from MYR1.8bn in 2Q15.

Upgrade to BUY. We upgrade UOAD to BUY (from Neutral) with a higher TP of MYR2.40 (from MYR2.09), based on a lower 40% discount to RNAV (from 45%). We turn more positive on UOAD not only due to the expected rebound in new sales next year, but also the strong earnings momentum that should increase the possibility of higher dividend payouts

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

UOA Development Bhd 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 enbloc transactions.

Recommendation Chart

Source: RHB Research - 24 Nov 2015