OUE LIMITED
LJ3.SI
OUE Ltd (OUE SP) - Re-rating Unlikely
Maintain HOLD with new SGD2.04 TP
- We apply varying discount rates to OUE’s sub-segments in our RNAV, which is lowered from SGD3.85 to SGD3.77.
- Our TP is lifted to SGD2.04 from SGD1.92. Our TP implies 0.5x P/BV, -1.2SD from its 10-year average.
- Still, we continue to rate OUE a HOLD, as it has 32% exposure to Singapore’s difficult prime office market.
- We also see limited options for its sole residential project, which it may have to exit at a loss.
- Prefer CityDev among our developers.
Coming glut of prime office space
- OUE has stakes in OUE C-REIT and OUE Downtown, which gives it significant exposure to the prime office market. Given a coming glut in this segment, we anticipate weak stock sentiment.
May exit residential project at a loss
- We believe OUE may have to lower its asking prices and exit its sole residential project, OUE Twin Peaks, at a loss.
- Some 82% of this 99-year prime residential project at Leonie Hill remains unsold and faces a QC deadline in Feb 2017, two years after its completion in Feb 2015. We expect the company to bulk-sell this project at a lower price before this deadline.
Discount for lack of control in fund & Gemdale
- OUE has a 50% stake in a JV that took a 25.7% stake in HK-listed Gemdale, giving it exposure to China’s property market. It has also invested over SGD300m in Nuvest Real Return Fund, an emerging-market mutual fund seeded with capital from GIC.
- We assign 50% discounts to its stakes in the mutual fund and HK-listed Gemdale (Not Rated) to reflect its lack of management control.
Derrick Heng CFA
Maybank Kim Eng
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http://www.maybank-ke.com.sg/
2016-01-13
Maybank Kim Eng
SGX Stock
Analyst Report
2.04
Down
1.92
