Notwithstanding the sluggish property market exacerbated by the pandemic for close to two years, UOA Development Bhd continued to beat its peers by delivering the highest weighted return on equity (ROE) of 7.9% for three years, from the financial year ended Dec 31, 2018 (FY2018), to FY2020.
That said, its ROE has been on a downward trend — from 8.4% in FY2018 to 8.2% in FY2019 and 7.5% the year after.
A look at the property developer’s financial statements shows that its net profit was marginally lower at RM391.29 million in FY2020 versus RM399.47 million in FY2019, owing to slower property sales and the absence of new project launches.
The temporary suspension of construction activities during the Movement Control Order also resulted in a delay in progressive revenue recognition.
However, the delay was mitigated by a fair value gain from the disposal of UOA Corporate Tower in Bangsar South to UOA Real Estate Investment Trust (UOA REIT) for RM700 million.
In the first six months ended June 30, 2021 (1HFY2021), UOA Development’s net earnings contracted 38.6% to RM90.44 million from RM147.4 million in the previous corresponding period. Its earnings performance was mainly dragged down by the contraction in the financial quarter ended March 31, 2021 (1QFY2021), in which its net profit fell nearly 71% due to higher progressive recognition from certain projects a year ago.
The company achieved total new property sales of about RM197.6 million in 1HFY2021, mainly derived from the Goodwood Residence, Sentul Point, Aster Green Residence and United Point Residence. Total unbilled sales stood at about RM101.3 million.
UOA Development is one of the few property developers in Malaysia with a comprehensive integrated in-house development and construction division. This allows the group to execute its developments efficiently on a “fast-track basis” — that is, within a shorter development cycle.
Moving forward, the group will continue to look out for land that fits its strategic development requirements. Recognising the cautious economic outlook, it will maintain its focus on the mid-end residential segment within the Klang Valley.
“The group will cautiously time its future project launches in line with the property market sentiment, the pandemic situation as well as the overall economic condition.
“Whilst there is no specific timeline for our future project launches, the group continues its planning for future development projects in locations such as Bangsar South and Sri Petaling,” UOA Development says in its 2020 annual report.
It is worth noting that the group has built up its net cash position over the years to RM1.93 billion as at end-June 2021. Given its expanding war chest, UOA Development, in which UOA Holdings Sdn Bhd controls a 71.35% stake, has been able to maintain its dividend policy of paying out 30% to 50% of realised profit after tax.
Kenanga Research has an “outperform” call on the group with a target price of RM1.76.
The research house believes that the planned new launches of RM1.05 billion in 4QFY2021 will have a greater earnings impact starting late FY2022, once construction enters a more advanced stage. These launches include Desa 3 landed properties with a gross development value of RM18 million, as well as Laurel Residence at Bangsar South (RM550 million), and Sri Petaling Phase 2 (RM480 million).
“Due to the overall uncertainties, the group continues to remain cautious, compromising on short-term earnings by holding out on launches backed by its high cash reserves of RM1.9 billion (or 89 sen per share),” Kenanga Research opines.
There are two “buy” and three “hold” calls on UOA Development, with a consensus target price of RM1.79, according to Bloomberg data.
Since early this year, its share price has been flat at around the RM1.70 level.
UOA Development does not intend to rest on its laurels. While strategising its new launches to sustain earnings growth, it is also cultivating new income sources.
Last May, the company announced its plan to diversify into the provision of caregiving services involving patients and senior citizens under a proposed joint venture, which will enable it to venture into the new business. The caregiving business will be set up at the Komune Living and Wellness Centre in Cheras, which is owned by its wholly-owned subsidiary UOA Golden Pines Sdn Bhd.