UOL Group Ltd (UOL SP) - Maybank Kim Eng 2017-08-07: More Gas Left In The Tank

UOL Group Ltd (UOL SP) - Maybank Kim Eng 2017-08-07: More Gas Left In The Tank UOL GROUP LIMITED U14.SI

UOL Group Ltd (UOL SP) - More Gas Left In The Tank


Top sector pick 

  • UOL's 2Q17 results offered no surprises. 
  • The valuation of its commercial properties was raised after a 25bps cut to cap rates. Buoyant sentiment has enabled UOL to raise ASPs for its residential projects in Singapore. 
  • We believe escalating land prices in the vicinity has put UOL in a very comfortable position when pricing the redevelopment of Raintree Gardens and our current ASP assumption looks very conservative. 
  • Maintain BUY and SGD9.05 TP, at an unchanged 15% discount to our RNAV of SGD10.66. 
  • UOL remains our top sector pick with catalysts from a property price rebound. Risks to our view include overpaying for land and a sharp fall in property prices.


UOL is raising ASPs on current projects 

  • There was a fair value gain of SGD12m in the quarter due to a 25bps cap rate compression for its commercial properties in Singapore. The buoyant sentiment and escalating land prices in the market has also allowed UOL to raise ASPs at Principal Garden and Clement Canopy.
  • However, the outlook for OneKM remains challenging due to heightened competition for retail tenants in the area.


Astute and cautious approach to land banking 

  • We believe UOL has been ahead of the curve in identifying the potential of the Bidadari area. Riding on the success of Botanique at Bartley, it acquired the Raintree Gardens site at a relatively low price. Since then, land prices have shot up and we believe it is in a very comfortable position due to its relative cost advantage. 
  • Our current ASP assumption of SGD1,600 psf for the redevelopment of Raintree Gardens looks very conservative when compared to an estimated breakeven price of SGD1,600 psf for the recently awarded site at Woodleigh Lane.
  • Management reiterates that it will not participate in a land tender if it cannot add value and prices are not attractive.


Value-unlocking potential a medium-term theme 

  • While we opined that the recent share swap deal between related parties of Dr Wee Cho Yaw remains a paper exercise for now, the eventual control of UIC would allow the company to unlock the potential in its assets. 
  • We see this as a less-risky and cheaper way to create shareholders’ value in time of elevated land prices.


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/ 2017-08-07
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 9.05 Same 9.050



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