Property Devt & Invt MALAYSIA July 25, 2012 UOA Development COMPANY NOTE UOAD MK / UOAD.KL Current RM1.58 SHORT TERM (3 MTH) LONG TERM Market Cap Avg Daily Turnover Free Float Target RM2.18 Previous Target RM1.84 US$594.4m US$0.62m 32.0% RM1,889m RM1.97m 1,196 m shares Up/downside 37.7% Conviction Notes from the Field A developer on steroids With YTD new sales of over RM1.1bn, UOA Dev has exceeded its full-year target of RM1bn. At this rate, we would not be surprised if it beat its target by 50-100%. The strong sales will allay concerns over its earnings and dividend sustainability. In view of the stronger-than-expected Strong ability to adapt new sales, we raise FY12-14 EPS. We Terence Wong CFA One of the reasons for the strong new also up our target price after raising T (60) 3 20849689 sales is UOA Dev’s ability to adapt to RNAV by 4% to RM2.72 and cutting E [email protected] changing market conditions. Even in the target basis from 30% discount to the office space market where there is RNAV to 20% due to the company’s a glut, its projects are selling very well. brighter outlook. UOA Dev remains a Also, the group has spent the last two Trading Buy and is our new top pick years accumulating landbank in the in the sector. The stock is not an periphery of Kuala Lumpur for outperform because of election risks. Company Visit Expert Opinion development of medium-cost Channel Check Customer Views YTD sales exceed RM1.1bn residential properties priced around RM500k for which demand is robust. Concerns over UOA Dev’s earnings This lays the foundations for strong “The group has a strong sensitivity to economic and property new sales over the next few years. pipeline of new launches cycles have made it a huge flop share in 2012 with an estimated price wise since its listing last year. Very attractive valuations But this may be about to change. We Among the property stocks we cover, GDV of RM1.5bn. The new are pleasantly surprised to discover UOA Dev trades at the lowest P/E of launches are all centred that the group is thriving despite a 5-6x while its dividend yield is the around the Greater Kuala tougher property market highest at 7-9% or nearly triple the environment. For the 1st seven Lumpur area and the industry average. We believe there is months, new sales exceed RM1.1bn, group intends to continue further upside to our earnings which is more than the company’s forecasts given the high YTD sales this geographical focus.” full-year sales target of RM1bn. It has and strong pipeline of new projects to several more projects in 2H that – Tan Sri Dato’ Alwi be launched over the next 18 months. could drive new sales to RM1.5bn-2bn, Jantan, UOA Dev The sustainability of profits and which would be very commendable as Chairman dividends is a major attraction and UOA Dev enjoys pretax margins of will help rerate the stock. 40-50%, double the industry average. Price Close Relative to FBMKLCI (RHS) Financial Summary 2.4 108 Dec-10A Dec-11A Dec-12F Dec-13F Dec-14F 2.2 101 Revenue (RMm) 375 614 951 1,332 1,524 2.0 94 1.8 87 Operating EBITDA (RMm) 166.5 294.1 429.1 492.0 542.6 1.6 79 Net Profit (RMm) 272.5 384.8 300.1 340.2 393.9 1.4 72 1.2 65 Core EPS (RM) 0.15 0.19 0.25 0.28 0.33 150.0 58 Core EPS Growth (12.2%) 25.7% 33.4% 13.3% 15.8% 40 30 FD Core P/E (x) 10.56 7.27 6.30 5.55 4.80 Vol m Vol 20 DPS (RM) 0.03 0.10 0.12 0.13 0.14 10 Dividend Yield 2.14% 6.33% 7.59% 8.23% 8.86% Jul-Source:11 BloombergOct-11 Jan-12 Apr-12 EV/EBITDA (x) 9.03 5.73 4.28 3.99 3.75 52-week share price range P/FCFE (x) 70.95 NA 13.55 17.58 23.99 1.58 Net Gearing 17.9% (12.0%) (4.7%) (0.5%) 0.6% 1.19 2.20 P/BV (x) 2.03 1.05 0.96 0.88 0.80 2.18 Recurring ROE 23.8% 18.1% 15.9% 16.6% 17.4% Current Target % Change In Core EPS Estimates 0.4% 2.2% 10.1% CIMB/consensus EPS (x) 1.13 1.15 1.37 SOURCE: CIMB, COMPANY REPORTS IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Sources: CIMB. COMPANY REPORTS Designed by Eight, Powered by EFA UOA Development July 25, 2012 PEER COMPARISON Research Coverage Bloomberg Code Market Recommendation Mkt Cap US$m Price Target Price Upside UOA Development UOAD MK MY TRADING BUY 594 1.58 2.18 37.7% UEM Land Holdings ULHB MK MY TRADING BUY 2,723 2.00 2.56 27.8% SP Setia SPSB MK MY TRADING BUY 2,188 3.62 4.30 18.7% Mah Sing Group MSGB MK MY TRADING BUY 553 2.11 2.51 18.9% Eastern & Oriental EAST MK MY TRADING BUY 518 1.45 1.77 22.1% Rolling P/BV (x) Rolling FD Core P/E (x) 4.0 50 3.5 45 40 3.0 35 2.5 30 2.0 25 1.5 20 15 1.0 10 0.5 5 0.0 0 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 UOA Development UEM Land Holdings SP Setia UOA Development UEM Land Holdings SP Setia Mah Sing Group Eastern & Oriental Mah Sing Group Eastern & Oriental Peer Average: P/BV vs Recurring ROE Peer Average: FD Core P/E vs FD Core EPS Growth 3.0 25% 35 60% 2.5 21% 30 44% 25 29% 2.0 17% 20 13% 1.5 13% 15 -3% 1.0 8% 10 -19% 0.5 4% 5 -34% 0.0 0% 0 -50% Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Rolling P/BV (x) (lhs) Recurring ROE (rhs) Rolling FD Core P/E (x) (lhs) FD Core EPS Growth (rhs) Valuation FD Core P/E (x) P/BV (x) EV/EBITDA (x) Dec-11 Dec-12 Dec-13 Dec-11 Dec-12 Dec-13 Dec-11 Dec-12 Dec-13 UOA Development 7.27 6.30 5.55 1.05 0.96 0.88 5.73 4.28 3.99 UEM Land Holdings 28.31 26.25 19.48 1.79 1.67 1.54 24.53 18.93 12.99 SP Setia 21.76 18.70 15.65 1.91 1.81 1.70 15.51 13.99 11.64 Mah Sing Group 10.40 7.54 6.14 1.64 1.43 1.22 8.53 6.33 4.89 Eastern & Oriental 25.60 14.41 11.86 1.24 1.20 1.11 20.01 10.35 7.10 Growth and Returns FD Core EPS Growth Recurring ROE Dividend Yield Dec-11 Dec-12 Dec-13 Dec-11 Dec-12 Dec-13 Dec-11 Dec-12 Dec-13 UOA Development 45.2% 15.5% 13.3% 18.1% 15.9% 16.6% 6.33% 7.59% 8.23% UEM Land Holdings 44.2% 7.9% 34.7% 8.0% 7.5% 9.3% 0.00% 0.38% 0.75% SP Setia 25.3% 16.4% 19.4% 10.9% 11.2% 12.6% 2.97% 3.37% 3.63% Mah Sing Group 42.9% 38.0% 22.7% 16.9% 20.2% 21.4% 3.91% 4.27% 4.62% Eastern & Oriental 50.5% 77.6% 21.5% 5.6% 9.9% 11.1% 1.91% 2.50% 2.78% SOURCE: CIMB, COMPANY REPORTS Calculations are performed using EFA™ Monthly Interpolated Annualisation and Aggregation algorithms to December year ends 2 UOA Development July 25, 2012 BY THE NUMBERS Share price info P/BV vs Recurring ROE FD Core P/E vs FD Core EPS Growth Share px perf. (%) 1M 3M 12M 2.5 60% 14 900% Relative 0.8 -1.9 -34.4 12 757% 2.0 48% Absolute 2.6 1.3 -30.1 10 614% 1.5 36% Major shareholders % held 8 471% 1.0 24% 6 329% UOA Holdings Ltd 68.0 4 186% 0.5 12% PNB 7.1 2 43% 0.0 0% 0 -100% EPF 5.0 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Rolling P/BV (x) (lhs) Recurring ROE (rhs) Rolling FD Core P/E (x) (lhs) FD Core EPS Growth (rhs) Profit & Loss (RMm) Dec-10A Dec-11A Dec-12F Dec-13F Dec-14F UOA Dev enjoys one of the Revenue 375 614 951 1,332 1,524 highest profit margins in the Other Operating Income property sector due to the Cost Of Sales (170.7) (259.1) (421.8) (675.9) (789.0) Gross Profit 204.1 354.5 529.5 656.0 734.9 capture of construction Total Operating Costs (42.7) (64.8) (105.4) (169.0) (197.3) margins and its slow release Operating Profit 161.4 289.8 424.1 487.0 537.6 strategy.