• Maintain NEUTRAL, TP drops to MYR1.71 from MYR1.86, 8% upside with c.6% FY24F yield. Pipeline launches are going as planned and UOA Development’s new F&B business should complement its property projects. We expect its investment properties to drive earnings slightly in the coming quarters, premised on higher occupancy rates. While its net cash is still solid at MYR2.2bn, catalysts are lacking – especially in view of the current market risk arising from the upcoming state elections. Our new TP is now based on a 45% discount to RNAV (from 40%), with a 2% ESG discount applied.

• New F&B business to complement development projects. UOAD recently announced its involvement in some new F&B business via a 51%- owned subsidiary which operates Botanica Co Restaurant and Potager. We understand that this F&B business is already profitable, but management has no plans to aggressively expand this new venture. The F&B business is mainly to complement existing and upcoming projects (such as Bamboo Hills) in order to create awareness and boost catchment. Currently there are two Botanica Co restaurants, and the first Potager will be opened later this year at Bamboo Hills.

• Bamboo Hills Residence to be launched in 4Q23. The highly anticipated maiden launch of Bamboo Hill Residence at Jalan Ipoh will be in 4Q23. Management has yet to set the prices, but we expect an ASP of MYR600- 700 psf for the area. We understand that the first residential component will be located near to the mass rapid transit station – so the project’s strategic location should spur demand from investors and owner-occupiers.

• Rolling out strata office in Bangsar South in September. UOAD plans to launch two office tower blocks next to Vertical Corporate Tower, as demand for office space in Bangsar South has been encouraging. This fetches a GDV of MYR1.3bn, but only about one-third of it is planned for sale as small strata offices, while the remainder will be kept as investment units. We believe the office lots will be priced at around MYR950-1,000 psf, in line with the transaction of Vertical Corporate Tower at MYR955 psf when the building was sold to UOA REIT (UOAR MK, NR) in 2020.

• Office and retail assets to drive earnings slightly. While construction works and, as such, billings from ongoing projects are progressing as usual, we expect the recurring income from UOAD’s newer office assets to pick up further in the coming quarters. New retail spaces at United Point and South Link (combined NLA of about 230k sqf) have higher occupancy rates of >70% and >50%. In 1Q23, all of UOAD’s investment properties contributed MYR74.6m (under other income, +46% YoY) to net profit. New property sales and unbilled sales stood at MYR124m and MYR226m.

Source: RHB Research - 10 Jul 2023