DBS Vickers 2015-08-13: UOL Group Limited - 2Q15; Attractively priced. Maintain BUY.

UOL GROUP LIMITED U14.SI

Attractively priced 

  • 2Q15 results in line; property development income led the way. 
  • High level of income visibility with substantial recurring income. 
  • BUY, revised TP of S$8.47. 

Highlights 


2Q15 results in line. 

  • UOL booked a 28% y-o-y dip in PATMI to S$152.5m which was mainly due to lower fair value gains. 
  • Operational performance remained steady with topline and PBT and fair value gains rising by 60% and 9% y-o-y respectively. 
  • Property development led the way. Property development income (S$162.3m, 47% of topline) was the main contributor to topline, mainly from higher progressive recognition of revenues (Katong Regency, Seventy Saint Patricks, Riverbank@Fernvale and Botanique at Partley). 
  • Property investment income rose 15% y-o-y to S$54.9m, mainly due to contribution from OneKM mall. 
  • Hotel operations dipped slightly mainly due to lower contributions from its overseas hotels (Pan Pacific Perth, Parkroyal KL, Parkroyal Yangon). 
  • We understand that its Singapore hotels remained stable with RevPAR dipping slightly by c.1%, which is commendable given current market conditions. 

Outlook 


Pre-sales for Singapore residential projects doing well amid muted residential outlook. 

  • UOL has continued to move units at 797-unit Botanique at Bartley (60% sell-through rate) and sold c.60% of the 555-unit Riverbank@Fernvale project in Sengkang, despite the ongoing government property curbs. 
  • We view this as a testament to the group’s ability to design residential projects that are well liked and attractively priced. 
  • The group is looking to launch its Prince Charles Crescent site in 2H15. 

Retail and office sub-segments to see headwinds going forward. 

  • UOL will see headwinds in both the retail and office segments going forward, given heightened competitiveness due to ongoing government curbs in the retail sector. 
  • This would affect occupancy costs, while higher office supply in 2016 is likely to further moderate upside to office rents. 
  • Its Singapore hotels will likely see a rise in performance in 2Q-3Q due to the Southeast Asian games, but should see a dip towards the end of the year due to increased room supply. 

Valuation: 


  • The stock is trading at an attractive 0.6x P/Bk NAV which is conservative, with potential upside coming from value extraction via 
    1. realising value at listed associate UIC, or 
    2. marking its hotel portfolio to market. 
  • Our BUY call is maintained but at a wider discount of 30% (vs 25% previously) given the weakening office outlook. 
  • TP is revised to S$8.47. 

Key Risks: 


Economic slowdown. 

  • The downside risk to our projections is if residential sales are slower than projected or if its hotel operations are impacted by slower-than-projected Revpar performance. 
  • The upside risks to our view and target price would be posed by higher-than-expected selling prices or upgrades to the target prices of its listed investment holdings.


Derek TAN | Mervin SONG CFA | Rachael TAN | http://www.dbsvickers.com/ DBS Vickers Securities 2015-08-13
BUY Maintain BUY 8.47 Down 9.31


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