UOA Development Bhd (Nov 24, RM2.15)

Maintain buy call with a higher target price (TP) of RM2.43: We have raised our estimated financial year ending Dec 31, 2015 (FY15E) earnings per share forecast by 21% to impute the sale completion of Vertical Office Suites and a higher earnings before interest, taxes, depreciation and amortisation (Ebitda) margin.

We have also raised our revalued net asset valuation-based TP to RM2.43 (still based on a 30% discount) from RM2.25 previously, as we have imputed a higher gross development value (GDV) for its Jalan Ipoh development at RM6 billion (from RM3 billion previously). We continue to like UOA Development for its strong management, good product branding and strong cash position.

For the third quarter of FY15, UOA Development’s core net profit grew by an impressive 54% year-on-year (y-o-y) to RM158.5 million, on the back of a 41% increase in revenue and a three percentage-point improvement in the Ebitda margin.

For the nine-month period (9MFY15), the core net profit of RM305.9 million (up 62% y-o-y) accounted for 106% of our full-year estimate and 99% of the consensus estimate.

The strong earnings were primarily attributed to higher margins from the recently completed Vertical Office Suites. As expected, no dividend was declared for the quarter.

Given the current soft property outlook, UOA Development’s property sales in 9MFY15 fell to RM708.4 million (fell 48% y-o-y; 9MFY14: RM1.37 billion), which were within our sales target expectation of RM1.1 billion for FY15.

Its 9MFY15 property sales were mainly from the Southbank Residences (RM162 million), Vertical Tower B (RM145.5 million), and Scenaria @ North Kiara Hills (RM122.6 million) projects.

Residential units made up 73% of UOA Development’s property sales, while the remaining 27% were from the commercial segment.

Risks to our view include a sharper-than-expected slowdown in the Klang Valley property market and high-end residential demand, as well as further delays in the development of its Jalan Ipoh project. — Affin Hwang Capital Research, Nov 24

Interested in investing in properties on Jalan Ipoh after reading this article? Click here.

This article first appeared in The Edge Financial Daily, on Nov 25, 2015. Subscribe to The Edge Financial Daily here.

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