Insider Asia’s Stock Of The Day: UOA Development

UOA Development should appeal to yield-seeking investors for its above-average yield, strong balance sheet and growing base of recurring income.

Whilst we do not foresee a quick turnaround in the property market, due mainly to deteriorating affordability and cooling measures, we expect UOA to ride through the slowdown fairly comfortably.

It has unbilled sales of RM1.8 billion at end-June 2015, which will sustain earnings for the next two years. UOA also retains its commercial developments for investment, providing a strong and growing base of recurring income. Notably, investment properties have more than doubled to RM864.4 million at end-June, from RM407.0 million in 2012. Last year, rental income surged 29.3% to RM40.5 million, from RM31.3 million in 2013, albeit still a relatively low percentage of overall profit.

Unlike many of its highly-geared competitors, UOA is cash rich. Net cash stood at RM740.9 million or 49 sen per share, from RM280 million in 2011. In line with the rising cash, UOA has been returning more to shareholders. Dividend increased from 10 sen to 13 sen per share over this period.

That gives an attractive yield of 7.1%. We believe the company is able to maintain dividends at 13 sen this year, given its substantial cash reserves and earnings visibility. Shareholders also have the option — through dividend reinvestment scheme — to reinvest their dividends in new shares at a discount of up to 10%.

The developer has total landbank of 120 acres, mainly in Greater Kuala Lumpur, with potential GDV of RM24 billion. Its flagship 60-acre integrated city development at Bangsar South is only about 40% developed, with remaining estimated GDV of RM6 billion.

Amidst softer property market this year, UOA has fine-tuned its product mix, focusing on affordable units, priced at RM600,000-700,000. The company intends to launch development projects with total GDV of RM2.4 billion in 2H2015, including a 9.8-acre mixed development in Kepong with GDV of RM1.5 billion.

This article first appeared in the digitaledge DAILY on Aug 24, 2015. Subscribe here.