UOA Development - En bloc sale in the pipeline

News    Lembaga Tabung Haji (LTH) has accepted the offer from UOA Development (UOA) to purchase two office blocks (Tower 6 & 2A) in Horizon (Phase 2) @ Bangsar South City. Both parties are not obliged to complete the purchase unless both towers’ SPAs are completed simultaneously. After the due diligence process is completed, Tower 6 will be sold at RM102m (RM700psf) and we expect a similar pricing as well for Tower 2A as they are identical. The expected sale completion date is by end-2012.

Comments

The sale price of RM700psf is slightly lower than the earlier en bloc sale of Horizon (Phase 2) office to DKLS (RM710psf). However, the slight discount is warranted as the group is selling two towers at one go. We expect RM20.9m in fair value gains (subject to a 5% RPGT) to be booked in the P&L.

Positive on the en bloc sale as it helps to lock in substantial sales, a larger cash pile and an immediate earnings contribution. Taking into account the year’s other en bloc deals and 1Q12 balance sheet, the net cash level of 0.03x will improve to 0.17x, this implies a sizeable cash pile of RM340m, which will be handy for significant landbanking.

UOA will have achieved 3 offices en bloc sales (incl. the said deal) this year amounting to RM298m. The total sales value to date is RM0.7b, inclusive of 1Q12 sales of RM444m, against our FY12E sales target of RM0.9b. This is commendable performance given the lukewarm property sector dynamics, demonstrating UOA’s ability to set itself apart from the pack.

Outlook               Assuming the launch of new projects (Glenmarie GDV of RM1.0b, Kiara IV GDV of RM0.5b) by 2H12, we are confident that the group will meet our estimates. UOA owns another three more Horizon Phase 2 office blocks. It will be interesting to see another en bloc sale done this year, where the group then would exceed our targeted FY12E sales of RM0.9b.

Forecast               Raising FY12E net profit by 7% to RM308m to reflect fair value gains. Consequently, we have also raised our FY12E NDPS by 4% to 13.4sen (8.2% yield) on the assumption of some portions of the gains will be distributed back to shareholders. We may raise our estimates again pending our upcoming company visit.

Rating   Maintain OUTPERFORM

Expect UOA’s projects to buck the bearish trend while the anticipation of its continuous strong dividend payouts will lend strength to the stock.

Valuation            We have raised our TP to RM1.84 (from RM1.65 previously) based on a narrower discount of 47%* (52% previously) to our FD SoP RNAV of RM3.46 (please refer overleaf for explanation).

Risks      Sector risks including negative policies

Source: Kenanga