UOA Development - En bloc sale to UEM Group

News   UOA completed an en bloc sale of its investment property (Tower 1, Avenue 7, Horizon Phase 2 @ Bangsar South, 0.23m sf floor area) to UEM Group for RM173.3m or RM750psf.
 
Comments   This will be its 4th en bloc sale for the year. We were anticipating another en bloc sale early next year, but was pleasantly surprise that it was completed in 4Q12. This is commendable performance given the lukewarm property sector dynamics, demonstrating UOA’s ability to set itself apart from the pack.

Sale price of RM750psf is fair considering the three Horizon Phase 2 en bloc office sales done this year; the first one was sold to DKLS @ RM710psf and whileLembaga Tabung Haji took up two blocks at RM700psf. Additionally, this particular block is larger and taller than the 1st three blocks sold this year.
Expected net fair value gain is RM32m, which will be booked in 4Q12.

Positive on the en bloc sale as it helps to lock insubstantial sales, a larger cash pile and an immediate earnings contribution. The group is already in a net cash position and the sale will further strengthen its balance sheet, which is handy for seizing bargain landbanking opportunities.
 
Outlook Key launches for the next 12-18 months amount to RM3.1b; Kencana Square@Glenmarie,
Scenaria/KiaraIV, Desa III, Desa II Phase 1 (Commercial), Desa Green and Kerinchi SoHo. 4Q12 will see SPA sales from Desa Green (1st two blocks almost fully booked) and Scenaria.
 
Forecast No changes to FY12-13E estimates as the group as we had earlier raised our estimates to reflect certain project expedited billings. However, since securing the en bloc sale this year, the group need not to
expedite its development works.

More importantly, UOA has further strengthened its operating cash flow, which will reinforce its strong
dividend payout abilities.
 
Rating Maintain OUTPERFORM

Investors’ need for defensive havens will keep this stock on the radar given FY12-13E net yields of
7.5%-6.3% which is higher than sizeable M-REIT's dividend yields of 4.5%-5.5%.
 
Valuation    Maintain TP of RM2.30 based on 34% discount to our FD SoP RNAV of RM3.43. TP still implies compelling FY12-13E yields of 5.5%-4.6%.
 
Risks  Sector risks, including negative policies and disappointing dividends.

Source: Kenanga