16 July 2013 Corporate Update UOA Development Berhad Newly acquired Jalan Ipoh land strategically located Maintain BUY Unchanged Target Price (TP): RM2.73 INVESTMENT HIGHLIGHTS UOA acquired lands in Jalan Ipoh in strategic locations. Accessibility to be enhanced in the future Including existing land, potential GDV is RM3b. Focusing on mid-range properties in a challenging market Maintain BUY with a TP of RM2.73 Strategic Jalan Ipoh land: Recently, UOA Development Berhad (UOA) acquired 6 parcels of freehold land measuring 16.8 acres at Jalan Ipoh for a total consideration of RM130.3m. Inclusive of an existing adjoining land UOA collectively owns about 28 acres of land in Jalan Ipoh. The land is strategically located at Batu 4 Jalan Ipoh next to Duke Highway s Batu toll plaza. Currently there are not many new property developments in the surrounding area. It is a mature housing area (refer to appendix), surrounded by densely populated residential areas such as Taman Kok Lian, Taman Impian, Taman Sri Kuching and Taman Rainbow. Mixed development with a neighborhood mall: The exact GDV and details of the project have yet to be finalised. Based on preliminary estimate, total GDV is about RM3b. The land will be developed into a mixed development which may include a neighborhood mall. The size of the shopping mall could be about 300-600k sq ft. UOA is looking for a co-owner or purchaser for the neighborhood mall. Better access for the Jalan Ipoh land: We are optimistic about the project as the acquisition is in line with UOA s strategy to develop fast turnaround projects at matured location. Due to the scarcity of land, locations like Jalan Ipoh and Sentul will be revived due to the proximity to KL City Centre (10-13km driving distance). UOA s strategy has been successful, as reflected by the strong take-up rates of 77% to 91% for on-going projects like Lee Yuan Residence, Scenaria @ North Kiara Hills, and Desa Green. In addition, UOA is applying to the authority to enhance the accessibility of the land. There will be direct linkages to both sides of the DUKE expressway. Existing projects: Tower A of Scenaria has opened for sales. Pricing for Tower A is more than RM600 psf, which is a 5% increase from the previous launch. The third block of Desa Green was launched at close to RM800psf. The first launch for the project was more than RM600psf. Almost all the units of Desa Green have been taken up with only about 200-300 units of bumi lots available. RETURN STATS Price (15 Jul 13) Target Price Expected Share Price Return RM2.23 RM2.73 +16.17% Expected Dividend Yield +5.11% Expected Total Return +21.28% STOCK INFO KLCI 1786.67 Bursa / Bloomberg Board / Sector Syariah Compliant 5200/ UOAD MK Main/ Property Yes Issued shares (mil) 1270.80M Par Value (RM) 0.05 Market cap. (RM m) 2986.30 Price over NA 1.42x 52-wk price Range RM1.50 RM2.73 Beta (against KLCI) 1.58 3-mth Avg Daily Vol 1.84m 3-mth Avg Daily Value Major Shareholders RM4.44m UOA Holdings SB 67.82% EPF 6.45% UOADEV EM PROV Fund 5.24% KINDLY REFER TO THE LAST PAGE OF THIS PUBLICATION FOR IMPORTANT DISCLOSURES
2 INVESTMENT STATISTICS FY Dec FY11 FY12E FY13F FY14F Revenue (RM m) 613.6 799.2 1160.9 1411.3 EBITDA (RM m) 491.7 424.7 484.2 578.8 Pretax Profit (RM m) 481.8 414.2 472.8 566.4 Net Profit (RM m) 384.8 301.3 330.6 399.1 Net Profit Margin (%) 62.7 37.7 28.5 28.3 EPS (sen) 36.3 24.6 26.0 31.4 PER (x) 6.5 9.6 9.0 7.5 Gross DPS (sen) 10.0 12.0 12.7 15.3 Gross dividend Yield (%) 4.3 5.1 5.4 6.5 Source: Company, Forecasts by MIDFR New project: Office market is more challenging in the KL CBD area due to excessive supply, but rental demand for office space in Bangsar South is still healthy. Occupancy rates for most of the Horizon office towers are more than 90% and rental rate is about RM6psf which is close to the average rental of RM5.59 psf (source: Napic) for investment grade office building in Golden Triangle. In 2H13, UOA will launch phase II of The Vertical II with GDV of RM350m. Take up rate for phase 1 is encouraging at about 72%. The initial plan for phase II of The Vertical II is to be sold en-bloc but UOA has revised their plan to launch the office tower on strata basis due to the strong demand for strata office space. In addition, UAO plans to capture the strong demand by constructing a new office Tower of The Vertical with total NLA of 1.5m sq ft. Total construction cost of the office tower is about RM300m which will not be an issue as UOA s balance sheet is strong. Potential disposal of another office tower: UOA is in negotiations with potential buyers to dispose one of their Horizon office towers which has been kept as inventory. The office block will contribute about RM40m to the top line if the negotiation is successful. We believe pricing should be close to RM800psf. We are maintaining our forecast at current juncture. DIBS: The property market is more challenging following a series of financial and non-financial anti-speculative measures. Currently most of UOA s residential projects offer developer interest bearing scheme (DIBS). Nevertheless, buyers who do not accepting the DIBS will normally receive 2-3% discount on their purchase price. Hence, developers could actually price their property lower if they are not financing the interest during construction. A genuine purchaser will not be affected by the potential curbing of DIBS. Mid-range products at mature housing areas: Recently UOA also acquired around 7 acres of land in Sentul. Currently information about the project value and location is still lacking. UOA will develop high-rise residential properties with small retail portion. Moving forward, UOA will maintain its focus on relatively affordable products within the range of RM500-600K at locations with good population catchment. Towards end of the year UOA will launch South View Residence Bangsar South. Strategically located along Federal Highway, in close proximity to the University LRT Station, total GDV for the project is RM600m. The GDV of South View Residence could be higher as UOA is revising the pricing of the project. Valuation: We are positive on the acquisition which is in line with UOA s proven strategy. In addition, the direct linkage to DUKE highway will enhance the accessibility and generate strong interest in the development. Even though property market may turn challenging, we believe UOA s mid-range residential properties will still generate strong interest from genuine purchasers. We are maintaining our BUY recommendation with a TP of RM2.73. We arrive at our target price by ascribing a price to earnings ratio (PER) of 10.5X against FY13 EPS of 26 sen. PER of 10.5X is the 10-year historical average of its closest peers which have similar characteristics with UOA of being a niche developer.
3 DAILY PRICE CHART Zulkifli Hamzah Sean Liong Cheng Fatt Sean.Liong@midf.com.my 03-2173 8227 Appendix Realizable Net Asset Value Projects Type GDV (RM m) NPV @ 13.6% WACC Desa II (commercial)-phase 2 Mixed 300 53.6 Kepong V Mixed 1,500 286.4 Jalan Ipoh Land** Mixed 1,750 294.2 Bangsar South Land Commercial 3,000 467.2 Bangsar South Land Residential 1,977 356.4 Land around Bangsar South Commercial 800 140.1 Kerinchi Soho Residential 600 121.5 Kencana Square Mixed 1,500 31.7 Desa III Bungalow 14 2.1 Senaria (Kiara IV) Residential 600 72.9 Vertica Phase II Commercial 350 79.1 Desa II (commercial)-phase 1 Commercial 600 135.6 Others 35.0 Unbilled Sales 196.9 Total 2272.6 Net Asset* 1033.8 Total RNAV 3306.5 RNAV per share 2.76 *exclude property development cost, inventory and land *excluding the new land pending exact number from the company Source: Company, MIDF Research
4 Approximate location of Jalan Ipoh Land Newly acquired Land Source: Google Map
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 TRADING 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. 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. 5