UOL Group Ltd (UOL SP) - Maybank Kim Eng 2017-02-27: Riding the Improving Residential Sentiment

UOL Group Ltd (UOL SP) - Maybank Kim Eng 2017-02-27: Riding the Improving Residential Sentiment UOL GROUP LIMITED U14.SI

UOL Group Ltd (UOL SP) - Riding the Improving Residential Sentiment


Top sector pick; Maintain BUY w/ TP raised 4% 

  • UOL reported inline FY16 net profit. Management pointed to improving sentiment for Singapore’s residential market and keen interest at its new launch. 
  • UOL has demonstrated strong execution with quick inventory turnover stemming from the right pricing strategy, in our view. 
  • We roll forward our valuation basis and raise our TP 4% to SGD7.68, at an implied 22% discount to RNAV of SGD9.90. 
  • We build in our initial estimates for 45 Amber Road and incorporate MBKE’s latest TP for UOB (HOLD, TP SGD19.54)
  • Maintain BUY and recommend switching out of CAPL (HOLD, TP SGD3.66) and CDL (HOLD, TP SGD9) into this sector laggard.


Inline results; Strong launch ahead 

  • FY16 net profit of SGD287m was broadly in line with our estimates as softer-than-expected development margins were offset by positive income variance from associates. 
  • Furthermore, net profit was dampened by non-recurring charges associated with the acquisition of Holborn Island and impairments to its Bishopsgate project. 
  • Management indicated that sentiment is improving for Singapore’s residential market and there has been keen interest for its new launch at The Clement Canopy.


Higher sales velocity from mid-to-mass market focus 

  • We believe UOL’s focus on mid-to-mass market projects has allowed it to move units faster than the competition with a high-end focus. By adopting the right pricing strategy, it has been able to achieve swift sales that drive quick inventory turnover. This lowers development risks and allows it to recycle capital quickly.


Plenty to like about this developer 

  • We continue to like the defensive positioning of UOL. Its strong recurring income stream of SGD300m+ a year provides a good cushion amidst the tough market environment. 
  • The company has also demonstrated strong execution in Singapore’s residential market. By selling out enbloc projects bought prior to the GFC, it currently has no exposure to potential QC penalties in the near term. 
  • We see deep value in the shares that suggest the market has not priced in upside from a medium-term restructuring story. By slowly accumulating UIC shares (Not Rated) at the market price, UOL is effectively acquiring its underlying properties at half their value. See our initiation note for details.


Swing Factors


Upside

  • Monetisation of property assets.
  • Rebound in home sales.
  • Unwinding or restructuring of cross-holdings in related parties like UOB, UIC and Haw Par.

Downside

  • Overpaying for land.
  • Poor execution of development projects.
  • Sharp increase in interest rates which could dampen demand for properties and drive down asset prices.




Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-02-27
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 7.68 Up 7.390



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