UOL Group - DBS Research 2017-11-10: Growing Big Slowly And Steadily

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UOL GROUP LIMITED U14.SI

UOL Group - Growing Big Slowly And Steadily

• UOL Group's 3Q17 results boosted by gains on consolidation of UIC.
• Post-consolidation impact – higher depreciation and lower development profits in the future.
• Property launches in FY18-FY19 with estimated GDV of S$1.4bn or more.
• Possibility to raise its stake in UIC without general offer.

Valuations remains attractive post UIC consolidation. 

• We maintain our BUY rating on UOL Group (UOL), now trading at an attractive valuation of c.0.8x P/NAV with the consolidation of UIC. The successful launches of recently purchased land sites in the enbloc market will be re-rating catalysts for the stock. 
• We have lifted our TP to S$10.15, factoring in higher stakes in UIC and raising our ascribed value based on market price previously to NAV.

Where we differ. 

• More positive than consensus as UOL stands to benefit from improved sentiment in the Singapore property and hospitality segments. As the earliest to landbank at a lower price, UOL stands to benefit from the improved sentiment in Singapore property segment. 
• In addition, the turnaround in the hospitality segment bodes well for UOL’s hotel properties, and now with UIC’s hotel properties.

Potential catalysts: 

More landbanking, strong sales take-up, potentially gaining more control on UIC to unlock value.

• 3Q17 results boosted by gain from acquisition / consolidation of UIC. 3Q17 net profit of S$618m (vs S$87m in 3Q16), included gain on acquisition and consolidation of S$542m but partially offset by S$15m of business acquisition costs. Excluding the effects of consolidation, 3Q17 net profit fell 13% y-o-y to S$76m. 

Key positives:

1. property launches in FY18-FY19 with potential gross development value(GDV) of S$1.4bn or more, and
2. potential to raise its stake in UIC without general offer.

Key negatives

1. higher depreciation and less development profits in the future post consolidation.

Valuation

• Maintain BUY on attractive valuations. We raised our TP to S$10.15, pegged to a 20% discount to our RNAV of S$12.70, taking into higher stakes in UIC and raising our ascribed value from market price to NAV.

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/ 2017-11-10

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 10.15 Up 8.730