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UOA Development to have weaker 2Q — Kenanga Research

KUALA LUMPUR (June 30): While UOA Development Bhd's first quarter ended March 31, 2020 (1QFY20) came in within expectations, Kenanga Research is of the view that developer will have a weaker 2QFY20 as it has to contend with the fallout of the Movement Control Order (MCO).

In a note, the research house's Marie Vaz said a weaker 2QFY20 is expected due to the halted work progress born out of the MCO, with margins expected to ease closer to Kenanga's expectations of 28%, from the current 34% — given the challenges associated with Covid-19.

UOA Development's 1QFY20 sales, amounting to RM114.8 million, came in below its expectations of RM963 million (12%) mainly on the back of sales at United Point Residence and The Goodwood Residence.

Vaz noted that the developer has RM4.4 billion worth of projects currently under development. Specifically, the Goodwood Residence in Bangsar South and Aster Green Residence in Sri Petaling — launched respectively in September and November 2019 — are expected to contribute to FY20 sales, on top of ongoing projects and inventory clearing efforts.

The Kenanga analyst is maintaining the research house's FY20 core net profit of RM333 million, but is lowering forecasts for FY21 by 7% to RM350 million, as sales targets for FY20 and FY21 have been adjusted.

FY20 sales target has been lowered to RM814 million, from RM963 million. FY21 sales have been set to RM900 million. Vaz noted that UOA Development's FY20 to FY21 will be driven by recognitions from previous launches, mostly from Sentul Point, Goodwood Residence, South Link and Aster Green Residence. Unbilled sales of RM640 million provide less than one year's visibility.

Vaz also downgraded UOA Development to "market perform", from "outperform" previously, while maintaining a target price (TP) of RM1.79.

"Our TP remains unchanged despite an adjusted BV/share of RM2.45 (from RM2.36) and P/BV of 0.78x (from 0.76x) at 1.5SD below mean of its three-year historical band given our concerns that property developers will find it challenging to clear their inventory of completed stocks and achieve forward sales targets given the Covid-19 impact.

"That said, we believe the group would be able to maintain dividend payment of 14 sen in FY20-21 in light of its strong cash position, implying 7.7% net yield which is a premium over sizeable MREITs with net yield of only 4.8%," said Vaz.

UOA Development saw its 1QFY20 net more than double year-on-year (y-o-y) to RM124.22 million, from RM59.86 million. Quarterly revenue increased by 53.37% y-o-y to RM375.27 million, from RM244.67 million last year.

Shares in UOA Development were up 1.66% or three sen higher as at 9.36am, valuing the company at some RM3.62 billion. It saw 207,600 shares transacted.

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