UOL Group - DBS Research 2015-11-12: Sailing past rising headwinds

UOL Group - DBS Research 2015-11-12: Sailing past rising headwinds UOL GROUP LIMITED U14.SI 

UOL Group - Sailing past rising headwinds 

  • 3Q15 results in line 
  • Operating outlook remains challenging, but portfolio of fringe offices, niche positioning of retail portfolio to weather the uncertainty well 
  • BUY, TP S$8.47 


Highlights 


3Q15 results in line 3Q15 results in line 

  • UOL’s reported net earnings fell 2% y-o-y to S$101m, which was in line with our expectations. This was on the back of an 18% drop in topline to S$354m. 
  • The weaker revenue was mainly due to a lack of contribution from The Esplanade, Tianjin, partially offset by progressive completion of development projects – Katong Regency, Seventy Saint Patrick’s, Riverbank@Fernvale and Botanique at Bartley. 
  • Revenues from its commercial portfolio grew by 6% y-o-y to S$56.4m which was substantially boosted by the contribution from One KM mall. 
  • The group’s hotel portfolio saw a 4% dip in revenues, as a result of the refurbishment works at Pan Pacific Perth and PARKROYAL Yangon on top of the weakness in the MYR and AUD. 
  • Gross margin was higher at c.39%, mainly due to lower contribution from its property development division which has lower margins. 
  • The group’s balance sheet remains conservative, with gearing ratio at a low 0.3x. 


Outlook 


Pre-sales for Botantique at Bartley doing well amid muted residential outlook residential outlook 

  • UOL’s projects continue to see steady sales momentum, despite the ongoing property curbs. The group has sold c. 532 out of the 700 units released at Botanique at Bartley (total 797 units). 
  • The response to the recent initial launch of 663-unit Principal Garden condo at Prince Charles Garden in Oct-15 has been encouraging, with 60% of the initial phase of 200 units sold at c.S$1,600 psf. Retail and office sub- Retail and office sub-segments to see headwinds going segments to see headwinds going forward forward 
  • UOL’s portoflio of retail and office properties is understood to have occupancy rates close to 100%. The group however, expects headwinds in both the retail and office segments going forward, given heighted competitiveness due to ongoing government curbs in the retail sector. 
  • The group expects the heightened competition from the upcoming new supply in the CBD to cap rental hikes for its office properties, which are mainly located along the fringe. The group is reaching out to renew leases expiring in 2016 in order to maintain occupancies. We believe that the group’s retail properties (Novena and United Square) are likely to remain resilient given their niche positioning, cathering mainly to the needs of residents staying nearby and for childrens’ needs. 

Valuation: 

  • Our revalued NAV (RNAV) of UOL is S$11.29. Our TP of S$8.47 is pegged to a 25% discount to RNAV. BUY! 

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 target price would be higher-than-expected selling prices or upgrades to the target prices of its listed investment holdings.

Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2015-11-12
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 8.47 Same 8.47


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