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

UOL GROUP LIMITED U14.SI

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.

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.

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.

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 | http://research.itradecimb.com/ CIMB Securities 2015-08-12

ADD Maintain ADD 8.24 Down 8.40