UOL Group - DBS Research 2016-11-11: Diversification is key to sustainability

UOL Group - DBS Vickers 2016-11-11: Diversification is key to sustainability UOL GROUP LIMITED U14.SI

UOL Group - Diversification is key to sustainability

  • 3Q16 results in line; all divisions showing positive growth momentum.
  • Recent purchase of London offices improve earnings visibility; new launches planned in 2017.
  • BUY call maintained.


Potential headwinds ahead; but valuations still attractive.

  • Despite the weak operating outlook and potential headwinds, we maintain our BUY rating on UOL Group (UOL) based on its attractive valuations of c.0.6x P/NAV, which is below the low end of its historical range, making it one of the cheapest large cap landlords in Singapore.


3Q16 results in line; outlook improves. 

  • UOL’s 3Q16 net profit fell 14% y-o-y to S$87.1m, mainly due to lower contribution from JVs. However, the Group’s recent purchases in London should add to its recurring income stream and improve earnings visibility. 
  • Key positives from the results are: 
    1. 11% revenue growth from all divisions, and 
    2. rental reversions were generally positive for its office and retail properties with stable occupancy rates remained stable. 
  • However, RevPAR for most of its hotels in all markets were marginally lower except for hotels in Australia.


New launches in 2H16/2017. 

  • Management saw good take-up for its recent Park Eleven project in Shangai, selling 131 out of 168 units and there will be subsequent launches in phases in 2017. 
  • In addition, UOL is positioning to launch The Clement Canopy (1Q17; 505 units), and Bishopsgate, London (160 units). The purchase of a recent enbloc site at Potong Pasir Ave 1 will be finalised soon, the project is planned for launch in 2018.


Valuation

  • Maintain BUY on attractive valuations. 
  • Our TP of S$7.20 is pegged to a 30% discount to our RNAV of S$10.23.


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 | Rachel TAN DBS Vickers | http://www.dbsvickers.com/ 2016-11-11
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 7.200 Same 7.200




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