UOL GROUP LIMITED
U14.SI
UOL Group - Deep value large cap play
- FY15 results below our and consensus estimates
- Commercial portfolio offers strong cashflows
- Revised RNAV and discount rates due to uncertain outlook.
Deep value play.
- Trading at an attractive 0.6x P/NAV, which is close to its – 2 SD historical average, we believe that negatives from a weakening operational outlook has been priced in.
- Maintain BUY, based on a wider 30% discount to our updated RNAV, factoring our revised estimates for office and retail segments given the softening market outlook.
FY15 results hurt by impairments.
- FY15 net profit fell 43% to S$391m, 6% below consensus’ full year estimates, mainly due to impairment losses, lower fair value gains of investment properties and sale of land in FY14.
- Core PBT fell marginally by 1% to S$412m due to higher expenses offset by special dividend from UOB (80th anniversary).
- Property investment was the only division which recorded EBIT growth of 6% y-o-y while hotel operations’ EBIT fell 27% y-o-y.
- All divisions showed EBIT margin decline with the largest decrease from hotel operations (14% vs 18% in FY14). Please refer to page 2 for more details.
Commercial portfolio is resilient in a weak market.
- UOL derives a significant c.50% of revenue from its retail, office and hotel segments which should continue delivering stable cashflows.
- We expect its portfolio of commercial properties (office & retail) to be resilient in the face of headwinds from both the office and retail sectors.
- For offices, this is mainly due to their location along the fringes of the CBD where rental volatility is lesser, while its retail assets have a unique niche in the children and education sectors which has relatively inelastic tenant demand.
Deep value for its hotel business.
- We believe that deep value lies in the group’s portfolio of well located hotels and serviced residences in Singapore, Malaysia and Australia. These hotels are held on a historical cost basis, which is conservative compared to potential realisable value.
- We estimate there is potential upside of more than S$0.9bn if the valuations of these properties are marked-to-market.
Valuation:
- Our revalued RNAV of UOL is S$10.56, after accounting for lower office rental estimates and market prices of UOB and UIC.
- Our TP of S$7.39 is pegged to a 30% discount to our RNAV.
- Maintain BUY.
Key Risks to Our View:
- Economic slowdown. The downside risk to our projections is if residential sales are slower than our projections or if commercial properties and hotels operations are impacted by slower-than-projected growth in rental/room rates.
Derek Tan
DBS Vickers
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http://www.dbsvickers.com/
2016-02-29
DBS Vickers
SGX Stock
Analyst Report
7.39
Down
8.47
