KDN: PP 10744/06/2012 06 January 2012 Initiating Coverage UOA Development Berhad Thriving on fast track business model INVESTMENT HIGHLIGHTS Successful niche market developers: UOA Development Berhad (UOA) focus on medium to high end residential and commercial property developments in Klang Valley. Prior to listing, UOA was the property development arm of United Overseas Australia Limited (UOA Ltd) which has more than 21 years of experience in property development. Among the notable projects completed by UOA includes Prima Setapak, Menara UOA Bangsar and UOA Damansara. Currently there are 7 ongoing projects all located at prime and matured districts in the Klang Valley. Their ongoing and pipeline developments are located at various established locality with strong population catchment such as Bangsar South (flagship development), Kepong, Setapak, Segambut, Old Klang Road and Shah Alam. Bangsar South is UOA s anchor development for the next 7 years and other pocket developments have shorter development lifespan of between 2-4 years. Ability to construct on fast track basis: UOA s in-house planning, developments, construction and purchasing departments had ensured timely completion of projects. Like Mah Sing s quick turnaround business model, UOA s integrated structure allows them to execute their development projects on a fast track basis thus reducing turnaround time for each development. In the past 4 years, UOA s gross margin ranged 43-57%, which is over 2 times of the margin of other local developers. Higher profit mainly due to value creation from the step up of property value in Bangsar South, higher margin of niche development as well as cost savings of in house construction. Leveraged on parent group s interest in UOA REIT. First right of refusal on commercial properties completed by UOA was granted to UOA REIT, the purchase decision of which was subject to the fulfillment of various investment criteria. In 2007-08 UOA REIT had acquired UOA Bangsar and UOA Pantai for a total consideration of RM107m. In the future, UOA will be able to redeploy their capital towards other high yielding development projects by disposing their investment assets to UOA REIT. RETURN STATS Price (05 Jan 12) Target Price Expected Share Price Return Recommend BUY Target Price (TP): RM1.57 RM1.37 RM1.57 14.54% Expected Dividend Yield 4.91% Expected Total Return +19.44% STOCK INFO KLCI 1514.43 Bursa / Bloomberg Board / Sector Syariah Compliant 5200/ UOAD MK Main/ Property Yes Issued shares (mil) 1195.86 Par Value (RM) 0.05 Market cap. (RM m) 1638.33 Price over NA 0.98x 52-wk price Range - Beta (against KLCI) - 3-mth Avg Daily Vol 5.89m 3-mth Avg Daily Value Major Shareholders RM8.07m UOA 67.05% EPF 5.01% Invesco Asset Mgmt Ltd 0.35% KINDLY REFER TO THE LAST PAGE OF THIS PUBLICATION FOR IMPORTANT DISCLOSURES
2 INVESTMENT STATISTICS FY Dec FY10 FY11F FY12F FY13F Revenue (RM m) 375.2 640.6 770.4 839.3 EBITDA (RM m) 348.4 408.4 374.3 405.1 Pretax Profit (RM m) 340.6 400.3 365.0 394.8 Net Profit (RM' m) 282.6 306.5 268.1 290.0 Net Profit Margin (%) 75.3 47.9 34.8 34.5 EPS (sen) 23.6 25.6 22.4 24.2 PER (x) 5.8 5.3 6.1 5.7 DPS (sen) 0.0 5.4 6.7 7.3 Dividend Yield (%) 0.0 3.9 4.9 5.3 Source: Company, Forecasts by MIDFR Capitalizing on the strength of healthy balance sheet: After the listing in 2011, UOA had maintained a healthy balance sheet. We believe with cash and short term investment of about RM309m, UOA will be able to replenish land bank with GDV of at least RM2b (assume 100% cash payment for new land and land cost is 15% of GDV). In addition to that, UOA will be able to generate more cash for land banking activities from the injection of their investment assets into UOA REITs. Among the investment assets with higher value include 3 blocks of office building at Horizon Phase II Bangsar South which is held as investment assets. In line with their fast track business model, UOA s future acquisition of land bank will focus in Klang Valley. Last year, UOA acquire 2 parcel of land in Sri Petaling and Kepong which will be developed into high rise residential developments. Flagship Development: Bangsar South sits on a 60 acres leasehold land opposite Menara TM near Mid Valley City. The mixed development comprises of residential and commercial components as well as a neighborhood shopping mall. Phase 1 of The Horizon (commercial) and The Park Residences (residential) have been completed. Currently, The Horizon Phase II (RM909m GDV) and Camelia Service Apartment with Annex building (RM351m GDV) is under development. Take up rate for The Horizon Phase II and Camelia stands at 28% and 60% respectively. Pipeline properties of Bangsar South includes later phase of The Park Residences, The Vertical (Grade A office), The Sphere (neighborhood shopping mall) as well as The Clubhouse. Total development value for the pipeline developments are RM6.2b. Bangsar South is located at a strategic location with great accessibility via a future ingress from Federal Highway. The market value of Bangsar South land had surged from around RM53 in 2005 to RM280 in 2010. The average secondary market price for The Park Residences had also increase from RM318 psf in 2008 to RM 550psf in 2010 denoting strong price appreciation performance for Bangsar South s properties. UOA had continued to nurture the value in Bangsar South which is their anchor development for the next 7 years. Among the initiatives are Pedestrian Link Bridge to Kerinchi LRT station (completed) and the construction of Club Nexus (RM100m club house for the Bangsar South Community). The nearest competing project is Sp Setia KL Eco City, which located at a more superior location and better accessibility. However, Bangsar South had an advantage with lower pricing of their residential and office developments. Residential development contribution to improve: Presently, commercial development contributed about 54% of UOA s revenue. Dependency on commercial development raised the concern of stagnant sales moving forward as Klang Valley s commercial property market is saturating. Nevertheless, contribution from residential development is expected to improved in the near to medium term as 86% of UOA s unbilled sales are from residential development and more residential development are in the pipeline. Among the new residential launches in the near term are Le Yuan Residence (Sri Petaling), Desa II, Desa III (Taman Desa) and Kiara IV (Mont Kiara), which will increase the residential development contribution towards top line.
3 Offering right product mix at selected areas: UOA new launches and pipeline developments for 2012 including Le Yuan Residence (Sri Petaling), Desa II and Desa III which are located at matured residential areas of Sri Petaling and Taman Desa KL. Strategic location of the projects will attract both new buyers as well as up-graders from the catchment area. There are 2 new launches of commercial development in 2012 which is The Vertical (strata offices) in Bangsar South and phase 1 of Glenmarie Commercial Centre. We are slightly concern about the sales of The Vertical in Bangsar South due to the uncertain economic outlook as well as the saturating office property market. Valuations: UOA is the 7th largest listed developer in Malaysia with RM1.7b market capitalization. UOA strength lies in their fast track business model, in-house construction team, strategic land bank at matured location as well as the successful value creation of Bangsar South. UOA has a 30%-50% dividend payout policy of PAT (excluding fair value gains), based on our assumption dividend yield of UOA is fairly attractive at about 5.4%. UOA recorded property sales of about RM640m in 9MFY11. UOA current unbilled sales of about RM584m as well as the official launch of about RM2b projects in FY12 should underpinned strong earnings growth for the next 2 years. We had arrived at target price of RM1.57 for UOA by ascribing PER of 7X against FY12 EPS of 22.4sen. The PER of 7X is 40% discount against average forward PE of mid cap property developers. We are ascribing a 40% discount as high end developments are more vulnerable to the risk of stagnant sales during the slowdown of property market. We are recommending BUY for UOA as the return is more than 15% even though we had already ascribe steep discount to average forward PE of its peers and we are quite conservative on the sales projection of UOA. INVESTMENT STATISTICS Company Recommendation Price Target Price Market Cap P/BV EPS Dividend FY11 FY12 FY11 FY12 ROE NET Gearing PE UEM Land NEUTRAL 2.3 2.2 9,857.9 2.1 5.0 6.5 1.3 1.3 6.6 0.03 33.2 SP Setia NEUTRAL 3.9 3.9 7,145.3 2.1 20.2 22.9 15.7 17.7 10.6-0.02 17.0 IGB Corp Not Rated 2.5 2.5 3,695.9 1.1 12.3 13.8 12.3 5.2 5.6 0.09 18.2 Sunway NEUTRAL 2.5 2.6 3,218.3 1.2 21.5 26.4 5.2 6.3 11.2 0.47 9.7 IJM Land NEUTRAL 2.3 2.1 3,178.9 1.4 13.6 16.2 3.2 3.2 10.2-0.17 13.0 KLCC Not Rated 3.2 3.4 2,989.0 0.5 27.2 31.5 27.2 11.0 7.7 0.16 10.9 UOA NEUTRAL 1.4 1.6 1,638.3 1.0 25.6 22.4 5.4 6.7 19.1-0.01 7.0 Mah Sing NEUTRAL 2.0 1.7 1,630.5 1.6 20.0 25.0 10.7 13.4 17.0 0.58 6.8 E&O Not Rated 1.4 1.4 1,585.1 1.1 6.7 12.0 6.7 3.9 7.9 0.36 11.8 Bandaraya Not Rated 2.3 2.3 1,113.5 0.6 10.1 9.5 10.1 5.9 3.2 0.58 24.2 1.3 9.9 15.2 *source: Bloomberg, MIDFR DAILY PRICE CHART Zulkifli Hamzah Sean Liong Cheng Fatt Sean.Liong@midf.com.my 03-2173 8227
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MIDF RESEARCH is part of MIDF Amanah Investment Bank Berhad (23878 - X). (Bank Pelaburan) (A Participating Organisation of Bursa Malaysia Securities Berhad) DISCLOSURES AND DISCLAIMER This report has been prepared by MIDF AMANAH INVESTMENT BANK BERHAD (23878-X). It is for distribution only under such circumstances as may be permitted by applicable law. Readers should be fully aware that this report is for information purposes only. The opinions contained in this report are based on information obtained or derived from sources that we believe are reliable. MIDF AMANAH INVESTMENT BANK BERHAD makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of the information contained therein and it should not be relied upon as such. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. All opinions and estimates are subject to change without notice. The research analysts will initiate, update and cease coverage solely at the discretion of MIDF AMANAH INVESTMENT BANK BERHAD. The directors, employees and representatives of MIDF AMANAH INVESTMENT BANK BERHAD may have interest in any of the securities mentioned and may benefit from the information herein. Members of the MIDF Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein This document may not be reproduced, distributed or published in any form or for any purpose. MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS STOCK RECOMMENDATIONS BUY TRADING BUY NEUTRAL SELL Total return is expected to be >15% over the next 12 months. Stock price is expected to rise by >15% within 3-months after a Trading Buy rating has been assigned due to positive newsflow. Total return is expected to be between -15% and +15% over the next 12 months. Negative total return is expected to be -15% over the next 12 months. TRADING SELL Stock price is expected to fall by >15% within 3-months after a Trading Sell rating has been assigned due to negative newsflow. SECTOR RECOMMENDATIONS POSITIVE NEUTRAL NEGATIVE The sector is expected to outperform the overall market over the next 12 months. The sector is to perform in line with the overall market over the next 12 months. The sector is expected to underperform the overall market over the next 12 months. 6