UOA Development - Cost Adjustments Boost 3Q Profit Margin

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  • Maintain NEUTRAL and MYR1.78 TP, 11% upside. UOA Development’s 3Q22 results came in line with expectations. Sequential earnings were much stronger because of the cost adjustment arising from the completion of two projects. Sales momentum was encouraging in 3Q22, with 9M property sales reaching MYR480m. We expect the company to hit MYR550- 600m in sales by year end, driven by Laurel Residence and Goodwood Residence. It currently has a war chest of slightly above MYR2bn.
  • 3Q22 results. The stronger revenue QoQ was mainly due to the encouraging inventory sales, Goodwood Residence, which was completed in 2Q22, as well as sales from its new project, Laurel Residence. The quarter also saw the effect of cost adjustment arising from the completion of Aster Green Phase 1 and Goodwood Residence. As a result, EBIT margin expanded to 64.5% from 45.6% in the previous quarter. UOAD’s balance sheet has strengthened further with a net cash of MYR2.04bn.
  • Encouraging sales in 3Q22. 3Q22 new sales hit MYR229.1m vs MYR148m in 2Q22, bringing 9M sales to MYR480m. Key contributors included Laurel Residence (MYR233.9m), and Goodwood Residence (MYR162m). We think the company can possibly end the year with around MYR550-600m sales, better than our initial expectation.
  • No launches in 4Q22. Management indicated that Laurel Residence and the remaining units at Goodwood Residence will be the key sales driver in 4Q22. Launched in 2Q22, the take-up rate for Laurel Residence has already reached 39%. Response for Goodwood Residence has also improved significantly after the project was completed a few months ago. It was 67% sold as at September, and the latest take-up rate has reached 73%. In the pipeline, the launch of Sri Petaling Phase 2 (GDV: MYR480m) is delayed to early next year and management may roll out the first block of the residential project in Bamboo Hills (at Jalan Ipoh) in 2H23. Meanwhile, the commercial project in Bangsar South will now likely be turned into an office development and kept as an investment property.
  • Earnings forecast. We raise our FY22 earnings forecasts by about 7% given the better-than-expected margin arising from the cost write-back. We do not expect any project completion over the next 12 months. Unbilled sales declined to MYR181.1m vs MYR123.9m as at 2Q22.
  • ESG. Our TP is based on an unchanged 45% discount to RNAV and 0% ESG discount/premium given our ESG score of 3.0 (in line with the country median), using our in-house methodology.

Source: RHB Research - 30 Nov 2022

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