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OUE Limited - Maybank Kim Eng 2016-01-13: Re-rating Unlikely

OUE Limited - Maybank Kim Eng 2016-01-13: Re-rating Unlikely 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 | http://www.maybank-ke.com.sg/ 2016-01-13
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 2.04 Down 1.92


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