OUE LIMITED
LJ3.SI
Volatile earnings, lacks catalysts
- 2Q15 net loss of SGD16.3m due to fair value losses of SGD20.5m in mutual funds. EBIT of SGD18.6m slightly below.
- Special DPS to distribute proceeds from the sale of Crowne Plaza Changi Airport was a bright spot.
- Maintain HOLD with TP cut to SGD1.92 (from SGD2.35), based on higher RNAV discount of 50%.
Earnings outlook unexciting.
- Volatile profit from mutual funds; special DPS +ve, 2Q15 net loss of SGD16.3m was due mainly to fair value losses of SGD20.5m in mutual funds. EBIT of SGD18.6m was slightly below with 1H15 accounting for 36% of full year forecasts. Hospitality revenue decreased by 5.4% due to the weak tourism market.
- Better occupancy at the US Bank Tower, where committed occupancy rose by 0.5ppt QoQ to 80.1%, was the key driver of higher revenue from investment properties. Its property development segment contributed revenue of SGD3.3m (2Q14: SGD10.9m) due to sales recognition from OUE Twin Peaks.
- Financing cost increased as interest expense for OUE Twin Peaks needs to be expensed off after its TOP in 1Q15. The company declared special DPS of 3.0 SGD cts to distribute proceeds from the sale of Crowne Plaza Changi Airport Hotel that was divested earlier in the year. This is on top of interim DPS of 1.0 SGD cts.
Little scope for re-rating despite cheap valuation
- We tweak our RNAV estimates down to SGD3.85 (from SGD3.94) to reflect updated market value of its stakes in OUE C-REIT and OUE H-Trust.
- We note that its non-core holdings of SGD479m in mutual funds, which were increased from SGD374m in end-Mar, have led to volatile earnings and possibly a riskier stock profile.
- Given the muted earnings outlook and lack of stock catalysts, we doubt the stock will re-rate from its current cheap valuation.
- Hence, we lower our TP to SGD1.92 (from SGD2.35) after increasing our RNAV discount to 50% (from 40%).
- Maintain HOLD.
Derrick Heng CFA | http://www.maybank-ke.com.sg/ Maybank KE 2015-08-14
1.92
Down
2.35
