Analysts puzzled as UOA fails to shine on debut

UOA Development Bhd chairman, Tan Sri Alwi Jantan (right) together with managing director CS Kong (centre) and non-independent non-executive director Alan Charles Winduss (left) looking at the main screen after the listing ceremony. AZMAN GHANI/The Star

PETALING JAYA: Last Wednesday marked UOA Development Bhd's debut on the Main Market of Bursa Malaysia.

Year-to-date, the property developer's initial public offering (IPO) was the largest such exercise in South-East Asia.

Based on the IPO's institutional price of RM2.60 per share, UOA Development has a market capitalisation of RM3.1bil, which makes it among the five largest property developers listed on Bursa Malaysia, together with UEM Land Bhd, SP Setia Bhd, IJM Land Bhd and IGB Corp Bhd.

The company is a unit of United Overseas Australia Ltd (UOA), which was founded and listed on the Australian Stock Exchange (ASX) in 1987.

Its headquarters and business operations has been based in Kuala Lumpur since 1989.

UOA is also listed on the Singapore Stock Exchange (SGX) in 2008, while its associate company, UOA Real Estate Investment Trust (UOA REIT), was listed on the Main Market of Bursa Malaysia in 2005.

UOA Development is known as a fully integrated property developer with in-house capabilities in project conceptualisation and design, construction as well as sales and marketing.

UOA Development's property launches in the second half of this year include One @ Bukit Ceylon Hotel Suites, which consists of 354 units located on a freehold 1,566 sq m site off Jalan Ceylon, Kuala Lumpur, and Kiara IV, which is a freehold residential project with 80 units on a 39,700 sq m site in Bukit Segambut, Kuala Lumpur.

Both projects, due to be completed in 2013, have a combined GDV of RM400mil.

In a recent StarBiz interview, UOA Development director Alan Charles Winduss pointed out that the company's integrated operation model had helped it to remain competitive and also mitigate rising land costs to a degree.

As at Dec 31, 2010, UOA Develop-ment had a total saleable and lettable area of more than 300,000 sq m of properties under development with a gross development value GDV) of RM2bil to be completed over the next three years.

The company has a further total potential saleable and lettable area of more than 1.2 million sq m being held for future development projects with an estimated GDV in excess of RM8bil.

For financial year 2010 (FY10), UOA Development posted a net profit of RM285.8mil on revenue of RM375.2mil.

This was a 61% jump in net profit, compared with its reported net profit of RM177.6mil on revenue of RM427.8mil in FY09.

For the first quarter of this year, the company posted a net profit of RM130mil on the back of revenue of RM145.7mil.

However, it should be noted that in its profit calculation for the quarter under review, the company also recognised fair value gains amounting to RM92.3mil (which was not included as revenue for the quarter) due to the completion of Blocks 3 and 4 of The Horizon Phase II which are held as investment properties in the flagship Bangsar South City development.

Prior to UOA Development's listing, many research analysts were quite bullish about the shares' prospects as they said the company had solid fundamentals with a strong parent in UOA, prime landbank in strategic locations in the Klang Valley, and reasonably high margins attributable to its in-house construction and procurement unit.

Several research firms accorded fair values in the RM3.50 range for the share prior to listing.

However, the company's lacklustre debut on Bursa Malaysia left investors disappointed and analysts puzzled.

The stock touched a high of only RM2.62 on its first day of trade, and ended at RM2.52 as at last Friday, down 3.1% from its initial public offering (IPO) institutional price of RM2.60 per share.

The volume traded last week was 82.5 million shares, with some 78 million shares changing hands on Wednesday but only about 4.5 million shares on Thursday and Friday.

In a filing with Bursa Malaysia, UOA also raised its stake in UOA Development to 66.58% or 796.15 million shares by acquiring shares in the open market last Wednesday.

One analyst from a local research firm said investors' perceptions might have been affected by the share's low 5 sen par value against its offer price, as well as the flat performance on the local bourse last week.

Another analyst pointed out generally, investors preferred property stocks with more diversified township developments and were perhaps unhappy that UOA Development was mainly renowned for its ongoing 60-acre Bangsar South City project in Kampung Kerinchi, Kuala Lumpur.

Kenanga Research said in a IPO note last month that there was “single” area concentration risks for the company as the bulk of its projects were in Bangsar South City while the property sector's risks included negative real-estate policies, rising interest rates, tightening banking system liquidity and an economic slowdown.

A note issued by ECM Libra Investment Research last month said the company was also overly exposed to non-residential properties which accounted for 86% of its remaining GDV.

However, the company's chief operating officer (development division) David Khor said recently he hoped the ratio would change in the next two years, with higher volume contribution from residential projects.

As part of this strategy, the company announced last week, in a Bursa Malaysia filing, that its wholly-owned subsidiary, Magna Tiara Development Sdn Bhd, had entered into a conditional sale-and-purchase agreement with Sim Nam Housing Development Co Sdn Bhd to acquire two parcels of freehold land measuring 4.86 acres in Sri Petaling, Kuala Lumpur, for RM50mil cash from internally-generated funds.

The company plans to build a high-rise residential development on the site, located 15km from Kuala Lumpur City Centre, with a launch slated in the fourth quarter of this year.

By The Star