UOA Development buys Sri Petaling land for RM50m

KUALA LUMPUR: UOA Development Bhd, which listed on the Main Market of Bursa Malaysia on Wednesday, June 8, is acquiring two parcels of freehold land in Sri Petaling for RM50 million for a proposed high-rise residential development.

In a filing on Tuesday, UOA Development said its wholly-owned unit Magna Tiara Development Sdn Bhd had entered into a conditional sales and purchase agreement with Sim Nam Housing Development Co Sdn Bhd to acquire two parcels of land measuring 4.86 acres (1.97ha) in total.

UOA Development said the acquisition would be financed by cash from internally generated funds.

The company said the acquisition was in line with its strategy to further grow its development activities within Klang Valley.

"The land is strategically located about 15km from Kuala Lumpur City Centre, within the matured suburbs of Sri Petaling, Kuala Lumpur, which is a densely populated residential area highly accessible via major highways such as New Pantai Expressway, North South Highway and Kesas Highway.

UOA Development is proposing to develop the land into high- rise residential and has plans to commence in the fourth quarter of 2011.

The company said the total development costs and the expected profits to be derived from the development of the land have yet to be ascertained, as the detailed layout plan was pending finalisation.

Analysts said UOA Development, which has projects worth RM10 billion in gross development value, offers exposure to Klang Valley's hot property market.

RHB Research said the listing of UOA Development offered investors an opportunity to invest in a good fundamental stock, riding on the sustained sector upcycle.

The research house expects UOA Development's prospects would be driven by the continued expansion in profit margins as Bangsar South City has gone past its start-up stage; key landbank and developments that are strategically positioned in the high-growth Klang Valley area; and strong backing from the parent and strategic capital structure that allow UOA Development to unlock asset values as well as pave the way for potential collaboration on future projects.

RHB Research anticipates earnings compound annual growth rate of 59% over the next three years, adding that FY11 core earnings were expected to double from FY10, mainly due to the tail-end construction of The Horizon Phase 2, Kepong Business Park and Villa Pines.

For FY12/13, earnings will be underpinned mainly by the current projects such as Binjai 8, Camellia Service Apartments and Setapak Green, as well as RM8.6 billion worth of projects in the pipeline, out of which more than 70% of the projects are within the Bangsar South City, it said.

RHB Research values UOA Development at RM3.45 versus its IPO price of RM2.52.

"The implied PE and PB based on our RM3.45 indicative fair value are 18 times and 2.9 times for FY11, which are reasonable based on the sector's overall valuations," it said.

OSK Research, which has a fair value of RM3.57 for UOA Development, said with the proven quality and prime location of its development projects, the company had successfully built strong brand loyalty among property buyers.

The research house said it valued UOA Development based on one time of its revised net asset value (RNAV) valuation and arrived at a fair value of RM3.57.

"Our fair value represents around 23% upside from the offer price of RM2.90 and based on 40% dividend payout assumption, UOA Development offers dividend yield of 2.8% and 3.6% for FY11 and FY12. Based on the RM2.90 offer price, it translates to 2.13 times FY11 P/BV and 14.4 times PER on FY11 EPS.

"In comparison to the other large and mid cap property companies, UOA Development will be trading at 15% premium to the average sector P/BV multiple of 1.8 times. However in terms of PER multiple, it appears that UOA Development will be trading at a steep discount of around 40% to the sector average PER for FY11 and FY12," it said.

UOA Development will be the fourth largest property company listed on Bursa Malaysia after UEM Land, S P Setia Bhd and IJM Land with a market capitalisation of an estimated RM3.1 billion based on its final retail price of RM2.52 per share.

About 65% of the company's new project are located in Bangsar South, namely The Village, The Horizon Phase I and The Park Residences Phase I.

Some analysts pointed out that the company's assets have been revalued, and part of its profits were boosted by revaluation. Hence, the current FY11 ending Dec 31 may be a better gauge on the company's earnings.

Based on offer price of RM2.90, UOA Development shares are trading at P/BV of 2.13 times, which other analysts find this could put a cap on the property counter.

A model of Bangsar South City. Photo: Lee Lay Kin of The Edge Malaysia

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