CIMB Securities 2015-08-12: UOL Group Limited - 2Q15; Chugging Along. Maintain ADD.


Chugging along 

  • UOL’s 1HFY15 core net profit was largely in line with expectations and made up 40% of our full-year forecast. 
  • The group continued to enjoy a better showing from its residential and rental operations which helped to offset the slight slack in hotel contributions. 
  • Residential activities should continue to be the driver in 2H. The planned launch of the Prince Charles Crescent site in 4Q should extend earnings visibility. 
  • We tweak our RNAV by 2% to S$10.30, to factor in the latest target price for UOB and accordingly lower our target price to S$8.24, now based on 20% discount to RNAV. 
  • Maintain Add. 

Results largely in line 

  • UOL reported a 9% yoy rise in 2Q core net profit to S$98.7m, on a 60% rise in revenue to S$342.2m due to higher residential and rental revenue, partly offset by a slightly weaker hotel performance. 
  • At half-time, the bottomline was 16% lower yoy to S$172.2m due to a one-off profit from the sale of land in 2014. 
  • In 2Q, UOL recognised higher contributions from residential projects such as Katong Regency, Seventy St Patricks (>90% sold), Riverbank @ Fernvale (60% sold) and Botanique at Bartley (60% sold), as well as better rental income from One KM and positive rental reversions for its office and retail renewal leases. 
  • This helped to fill the slack from hotel operations which were affected by a poorer showing in Pan Pacific Perth, Parkroyal KL and Parkroyal Yangon. 

Residential driver in 2H 

  • Going into 2H, residential activities could continue to be the major driver of revenue. 
  • The completion of Katong Regency and progressive recognition of the four ongoing projects should boost the bottomline. 
  • The planned launch of the Prince Charles Crescent site in 4Q, totalling 663 units, should also extend the visibility of development earnings when sold. 
  • Rental income should remain relatively stable with only an estimated 20% of its office and retail space expiring next year. 
  • Hotel operations are likely to remain challenging with a weaker economic outlook and slower tourist arrivals. 
  • In terms of strategy, UOL is likely to continue to be selective in replenishing its development landbank in Singapore and deploying its capital overseas. 
  • Its balance sheet is healthy with gearing at 0.31x. 

Lower target price slightly, maintain Add 

  • We adjust our FY15-17 earnings marginally and tweak our RNAV down by 2% to S$10.30 to factor in the latest revised UOB target price. 
  • We continue to like UOL for its strong recurrent income base and deep value within its investment property portfolio. 
  • Maintain Add with a slightly lower target price of S$8.24, pegged to a 20% discount to RNAV.

LOCK Mun Yee | TAN Xuan CFA | CIMB Securities 2015-08-12
ADD Maintain ADD 8.24 Down 8.40