UOA Development Bhd (May 23, RM2.66)

Maintain neutral with an unchanged target price of RM2.75: UOA Development Bhd’s first quarter of financial year 2017 (1QFY17) core net income of RM43.4 million is deemed within expectations. This is despite only making up 11% of our and consensus full-year estimates as we expect stronger quarters ahead due to higher progress billing from strong property sales secured in FY16.

UOA Development’s 1QFY17 core net income declined 55% year-on-year (y-o-y), mainly due to lower progressive earnings recognition of the weak property sales of RM800 million secured in FY15 while last year’s earnings were boosted by strong profit margin. Looking ahead, we expect UOA Development’s FY17 earnings to be driven by the stellar new property sales in FY16.

Recall that UOA Development’s new property sales surged 77% to RM1.42 billion in FY16 from RM800 million in FY15, driven by launches of the United Point project (gross development value [GDV]: RM1.5 billion) and Sentul Point project (GDV: RM1.5 billion). On a separate note, 1QFY17 unbilled sales stood at RM1.57 billion (an increase from RM1.46 billion in 4QFY16), providing earnings visibility of 1.6 years.

UOA Development recorded new property sales of RM303 million in 1QFY17 (at 19% of our full-year new sales target of RM1.6 billion), increasing 79% y-o-y yet declining by 44% quarter-on-quarter.

The bulk of the new sales in 1QFY17 was contributed by the Sentul Point project (48%) and United Point project (44%). The two projects continue to drive property sales of UOA Development, thanks to the affordable offerings of the two projects. Looking ahead, UOA Development will launch the remaining blocks of the two projects in addition to its new projects launches being, Desa Commercial Centre (GDV: RM300 million) and Bandar Tun Razak development in Cheras (GDV: RM300 million). Meanwhile, the residential portion of The Sphere in Bangsar South has been taken out of planned launches for FY17 due to a change in redevelopment plans. — MIDF Research, May 23

This article first appeared in The Edge Financial Daily, on May 24, 2017.

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