UOL Group - DBS Research 2015-11-02: Deep Value Within

UOL Group - DBS Research 2015-11-02: Deep Value Within UOL GROUP LIMITED U14.SI 

UOL Group - Deep Value Within 

Deep value play. 

  • Trading at 0.7x P/Bk NAV and 0.6x P/RNAV, UOL Group (UOL) is an attractive deep value play, supported by a portfolio of quality commercial properties and hotels, serviced residences which are located near or within the Central Business District (CBD) of Singapore. 

Commercial portfolio to remain resilient. 

  • UOL derives a significant 47%-58% of revenues from its retail, office and hotel segments which should continue delivering stable cashflows. We expect its portfolio of commercial properties (office & retail) to be resilient in the face of incoming headwinds for both the office and retail sectors. 
  • For offices, this is mainly due to their location along the fringes of the CBD where rental volatility is lesser, while its retail assets have a unique niche in the children and education sectors which has relatively inelastic tenant demand. 

Deep value from its hotel business. 

  • We believe that deep value lies in the group’s portfolio of well located hotels and serviced residences in Singapore, Malaysia and Australia. These hotels are held on a historical cost basis, which we believe to be conservative compared to potential market realizable value. 
  • We estimate potential upside of more than S$1bn if these properties’ valuations are marked-to-market. 

Valuation: 

  • Our revalued NAV (RNAV) of UOL is S$11.29, of which the main bulk of the upside came from its hotel properties. 
  • Our TP of S$8.47 is pegged to a 25% discount to RNAV. BUY! 


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 | Mervin Song DBS Vickers | Rachael TAN DBS Vickers | http://www.dbsvickers.com/ 2015-11-02
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 8.47 BUY 8.47


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