UOADEV's 9MFY24 results came in below expectations. Its 9MFY24 core net profit was flat as rental incomes and hospitality profits were lower. We cut our forecasts by 15% and 13% for FY24F and FY25F, respectively as we turned more cautious on the segments' prospects in the higher-end products. Despite that, we maintain TP of RM1.79 and maintain our MARKET PERFORM call after recent share price correction that has factored in some softness in property sales.

UOADEV's 9MFY24 core net profit of RM157.5m came in at 61% and 68% of our full-year forecast and the full-year consensus estimate, respectively. This came below our expectations due to softer-than expected property sales of its Aster Hill and Laurel Residences products.

YoY, its 9MFY24 revenue increased by 7% due to better property sales, namely, from Laurel Residence and Aster Hill. However, its core net profit still came in flat, driven by lower rental incomes and hospitality profits.

QoQ, its 3QFY24 top line rose 42%. However, its core net profit declined by 21% due to higher effective taxes.

Outlook. UOADEV will maintain its focus on mid-range residential projects. The construction of Aster Hill and Laurel Residences is progressing as planned, with both expected to be completed by FY26. In addition, the Bamboo Hills Residences, which has a projected GDV of RM1.4b, was launched in July 2024 and has already secured a 70% take-up rate as of November 2024, from 38% three months ago. This project is anticipated to be completed by 2029.

Although earnings visibility is somewhat limited, with unbilled sales amounting to RM502.2m, it is supported by stable rental income and increasing occupancy at its office and retail spaces, such as Bamboo Hills and Sphere. Furthermore, the hospitality segment, including Komune Living & Wellness, is expected to benefit from the resurgence of both domestic and international guests.

Forecasts. We cut our earnings by 15% and 13% for FY24F and FY25F, respectively as we incorporate the cut in property sales.

Valuations. In spite of the cut in earnings, we maintain our TP of RM1.79 based on a 55% discount to its RNAV which is in-line with the industry average. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment case. We continue to 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 landbanks in urban locations, and (iii) a strong war chest backed by a net cash of RM245.1m as at 3QFY24. Maintain MARKET PERFORM as the recent share price correction has balanced out the risk-reward for the stock, granted by its stable investment income streams and consistent dividend payouts.

Risks to our call include: (i) a stronger-than-expected recovery in the property, hospitality, and MICE sectors, (ii) declining mortgage rates boosting affordability, and (iii) less restrictive urban development policies in the Klang Valley.

Source: Kenanga Research - 21 Nov 2024