UOADEV’s 9MFY23 results met expectations. Its 9MFY23 core net profit eased 5% due to lower property development profits, partially cushioned by improved rental incomes and hotel operations. Its relatively prudent growth strategy may not strike a chord with investors with a short investment horizon. We maintain our forecasts, TP of RM1.77 and MARKET PERFORM call.

Within expectations. UOADEV’s 9MFY23 core net profit of RM155.2m met expectations, accounting for 72% and 74% of our full-year forecast and consensus estimates, respectively.

YoY, its 9MFY23 revenue declined by 14% attributed to lower progressive recognition from ongoing development projects, namely Laurel Residence and Aster Hill. Further, gross margin normalised to 41.4% (-7.2ppts) from the absence of certain cost write-backs in the past year, all leading to gross profits to decline by 27%. On the other hand, other income (+51%) saw a strong boost from increasing rental income, and hotel operations. Given its high net cash position, the group also benefitted from higher interest rates, leading to an increase of interest income (+68%). All in, excluding one-off impairment adjustments, 9MFY23 core net profit came in at RM155.2m (-5%).

QoQ, its revenue increased by 9%, driven by progressive developments but it still saw margin compression, likely on the back of lower margin projects. Additionally, other income saw an increase of 16% thanks to better hospitality performance. Despite the positive aspects, 3QFY23 core net profit saw a decline of 25% due to higher effective taxes.

Outlook. UOADEV will continue to focus on mid-end residential projects, with ongoing sales campaigns for Aster Hill, Laurel Residence, Goodwood Residence, and United Point Residence with the latter two being already 100% completed (take-up rate as of Sept 2023 – 41%, 64%, 97%, and 99%, respectively). Additionally, the construction of Aster Hill and Laurel Residences appears to align with their FY26 timeline, which could further add to the group’s unbilled sales of RM322.8m. On the other hand, we expect rental income streams to remain supported from rising tenancy in its office spaces and higher retail activities (i.e., Bamboo Hills, Sphere) while its hospitality division (Komune Living & Wellness) could operate at sustainable level with the return of domestic and international guests.

Forecast. Maintained.

We also keep our TP of RM1.77 based on a 55% discount to its RNAV which is below the industry average of 60%-65% to reflect stronger realisability of its projects. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

We like UOADEV for: (i) its strategy to focus on mid-priced developments amidst a soft property market, (ii) the highly sought-after locations of its land banks in urban locations, and (iii) a strong war chest backed by a net cash of RM212.1m as at end-3QFY23. However, its relatively prudent growth strategy may not strike a chord with investors with a short investment horizon. Maintain MARKET PERFORM. It also offers an attractive dividend yield of c.6%.

Risks to our call include: (i) a prolonged slowdown in the property, hospitality, and MICE sectors, (ii) rising mortgage rates eroding affordability, and (iii) changes to urban development policies in the Klang Valley

Source: Kenanga Research - 28 Nov 2023