Highest return on equity over three years / Highest Returns to Shareholders over three years: Property (RM3 billion and above market capitalisation): UOA Development Bhd - GOOD showing despite property market slowdown

This article first appeared in The Edge Malaysia Weekly, on December 17, 2018 - December 23, 2018.
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UOA Development Bhd seems to have provided some shelter for investors even as the domestic property market experiences a slowdown.

Its share price has been on a steady climb over the three years from June 30, 2015, to June 30, 2018. It rose as much as 36.6% to RM2.38 on June 29, 2018, from RM1.74 on June 30, 2015 — which works out to a three-year compound average growth rate (CAGR) of 11%. Its market capitalisation rose from RM3.01 billion to RM4.12 billion over the same period.

The developer’s profit remains on the growth path despite the soft market. Its profit after tax (PAT) grew by a three-year CAGR of 15.8% to RM491.2 million in FY2017 from RM316.1 million in FY2014.

UOA Development has a dividend policy of paying 30% to 50% of its annual earnings. In fact, the total dividend of 15 sen per share paid in FY2017 was 52.9% of its realised PAT — above its guidance.

In FY2017, the company recorded a 12% return on equity (ROE) despite a 27.4% year-on-year decline in net profit to RM491.2 million. Revenue, however, grew 8.57% y-o-y to RM1.08 billion. Adjusted and weighted ROE grew at a three-year CAGR of nearly 15% — way above most of its peers’.

Despite the decline in earnings, its ROE in FY2017 was the same as that in FY2014 with its shareholders’ equity growing from RM2.75 billion in FY2014 to RM4.29 billion in FY2017.

It is worth noting that the property developer was in a net cash position of RM249.5 million as at June 30, 2018, giving it some financial muscle to seize land acquisition opportunities and help cushion any impact of the slowdown.

For the third quarter ended Sept 30, 2018, new property sales came in at RM1.14 billion, with contributions mainly from projects such as South Link Lifestyle Apartments, United Point Residence and Sentul Point Suite Apartments. Unbilled sales stood at RM1.67 billion as at Sept 30, 2018.

“The group will continue its focus on development at targeted geographical locations and continue to assess opportunities for land acquisitions that meet the criteria,” it says in notes accompanying its 3QFY2018 results.

In its 2017 annual report, UOA Development says its strategy remains firmly focused on development at targeted geographical locations and efforts to explore for opportune development land acquisitions that meet the objectives of group will continue.

One of its upcoming projects is Desa Commercial Center — formerly known as Desa Center — a commercial project located near Taman Desa, Jalan Klang Lama, off the East-West Link Highway, which comprises two 16-storey blocks of boutique offices with an anticipated gross development value (GDV) of RM300 million.

The company also has two projects located near Bangsar South with a total estimated GDV of RM919 million. They are South Link Lifestyle Apartments — which comprises 1,422 freehold serviced apartments and a two-storey lifestyle retail podium — and South Point, a hotel adjacent to South Link Lifestyle Apartments. Construction is progressing for both projects, with the latter expected to be completed in 2020 and the former in 2022.

Its Bandar Tun Razak development (estimated GDV: RM300 million), which consists of residential units with aged care facilities, is also slated for completion in 2020.