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Tuesday, October 4, 2011

UOA Development continues fall

KUALA LUMPUR: Shares of UOA Development Bhd continued to slide, losing 54% since its initial public offering (IPO) at RM2.60 in June, despite bucking a flattish property market sentiment and achieving strong earnings.

This has baffled both analysts and investors.

The company ended on Monday at RM1.19, effectively wiping off RM1.68bil from its market capitalisation of RM3.1bil at the time of its IPO. For its first half ended June 30, the company recorded a net profit of RM189.83mil on revenue of RM319.06mil.

CIMB Research recently said in a report that at 93% of its forecast and 94% of consensus projections, UOA Development's annualised first-half core net profit met expectations, given that future quarters should be stronger as recognition of the strong year-to-date sales picked up pace.

“However, in view of the stock market turbulence of late and global slowdown fears, we now value UOA Development at a 20% discount to market price to earnings ratio, instead of 10%, given the higher risks inherent in its large exposure to high-rise residential and commercial developments,” it said.

The local bank-backed research house also lowered the company's target price to RM2.89 from its initiating coverage price of RM3.25 previously. The Bursa Malaysia Property Index has also seen a similar decline, retreating some 20.7% to 857.92 points from 1,082.57. However, analysts noted that the drop in its share price had not been in tandem with the group's performance.

“The million-dollar question is why has it been sold down? Investors might not be in favour of the group's big exposure to high-rise residential and commercial developments.

“If investors believe that the uncertainties in the United States and Europe are just a blip, this is a good time to buy. However, if things are prolonged, the first ones to be hit would be (developers of) high-rise residential and commercial buildings,” said an analyst with a local bank.

Recently, different research houses had started to downgrade the property market, with the most recent being RHB Research, which said positive catalysts for the sector are scarce. It expects the property market to continue underperforming the broader market, with the weakening ringgit signalling more foreign equity selling and a lower expected return from properties, coupled with less bullish sales target next year as the research house sees further downside risk to gross domestic product growth.

CIMB Research said UOA Development's poor share price performance since its listing gave investors a chance to accumulate the stock on the cheap, adding that investors' realisation of the strong core earnings growth in 2011 to 2013 could spark a re-rating, along with robust sales or more landbanking.

“What sets UOA Development apart from its rivals is its wide gross margin of around 50%, which puts it well ahead of many sizeable established developers and will help this highly profitable developer to nearly triple its core net profit in fiscal year 2012,” it said. It has cut the company's 2011 to 2013 dividend per share forecast by 25% to 39% (7 sen to 11 sen) as UOA Development was targeting a payout ratio of 30% to 40%, compared with CIMB Research's earlier estimates of 30% to 50%.

By The Star

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