UOL - Diversification is key to sustainability
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:
- 11% revenue growth from all divisions, and
- rental reversions were generally positive for its office and retail properties with stable occupancy rates remained stable.
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.
- 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.