UOA Development (UOA)
is our 1Q13 Top Pick. They are targeting RM3.1-3.2b new launches (mainly
‘affordable segments’) over the next 12-18 months in highly sought-after
locations. The group has achieved 4 major en bloc sales this year and total
cash proceeds of RM470m will further deepen its current net cash position and
cash pile of RM169m. This will enable the group to comfortably undertake
Kencana Square infra works and Bangsar South’s next growth phase whilst
ensuring they can meet our expected FY12-13E net dividends yields of 7.1%-6.0%.
These are more attractive yields of sizeable M-REITs (4.5%-5.0%) and developers
average (2%-4%). No changes to TP to RM2.30 based on 34%* discount to our FD
SoP RNAV of RM3.43. Reiterate OUTPERFORM
given investors’ need for defensive havens.
4 major en bloc sales
this year, from Horizon Phase 2 offices @ Bangsar South (one to DKLS, two
to LTH, one to UEM Group). This speaks volumes of Bangsar South’s strategic
location and Grade A (MSC and GBI compliant) buildings since Klang Valley’s
office segment appears soft. Notably, they are the only ones doing en bloc
sales this year, with the exception to MAHSING’s en bloc sale. The group has
another 2 large Horizon Office Blocks (and a couple of small ones). Assuming
similar pricing (RM700-750psf on GFA basis), we expect the group to raise another RM300mRM350m, which will further
strengthen their cash pile; if so and in addition to the cash received from
this year’s en bloc sales, cash per share (c. 65sen) will make up c.40% of its
current share price.
Cash hoard readies
UOA for more landbanking and capital commitments. UOA is now in a net cash
position whilst its two latest (Jln Ipoh and Kepong) lands have already been
paid for. The group tends to buy land on 100% cash basis. UOA will be
constructing the basement podium of the next phase of Bangsar South (where
Vertical offices and hotel will sit on) over the next 18 months. Similarly,
Kencana Square podium/basement works will also take place during this period.
We estimate infrastructure capital commitments of RM200m-RM250m p.a. for the
next 3-4 years, which can be easily funded by its enlarged cash pile. In terms
of landbanking, the group did express interest in doing niche developments in
Iskandar Malaysia (IM) although no timeline or specifics was offered. We
believe it is a step in the right direction as we view Johor as the next growth
market.
Confident of dividend
payout estimates, on the back on unchanged FY12-13E core earnings of
RM290m-RM340m and sales of RM1.6b-RM1.8b. The group may experience a slight dip
in gross margins in FY13E by 3.3ppt YoY to 44.5% due to recognition of Kencana
Square construction works, which carry lower margins, at 100% stake; note
development earnings will be recognized as associates (39% stake). However, it
is still considered rich margins given that most developers range between
20%-30% levels. In addition to the
capital commitments and assuming minimum RM1b p.a. sales and conservative 30%
net margin, we believe it will not affect dividend payouts (average of RM150m
p.a.) for the next 2-3 years. Key launches
for the next 12-18 months amount to RM3.1b-RM3.2b; Kencana Square@Glenmarie (refer
below), Scenaria/KiaraIV, Desa III, Desa II Phase 1 (Commercial), Desa Green
and Kerinchi SoHo.
* Current discount of
34% to FD SoP RNAV of RM3.43 (post IDRP adjustment)
is based on 1.23x FY13E PBV @ +1.5SD to average since listing.
Source: Kenanga
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