UOL Group - CIMB Research 2016-02-29: Dragged by one-offs

UOL Group - CIMB Research 2016-02-29: Dragged by one-offs UOL GROUP LIMITED U14.SI 

UOL Group - Dragged by one-offs 

  • Results slightly below, impacted by impairments and lower revals. 
  • Lower residential on high FY14 base and slower hotel operations were partly offset by higher rental income.  
  • Residential contributions to recover with more than S$900m new residential sales in FY15. Rental income still enjoying marginal positive rental reversion. 
  • Maintain Add with a slightly higher RNAV-backed target price of S$8.26. 

■ Dragged by impairment charges and lower revals 

  • UOL’s FY15 results were slightly below. The group reported net profit of S$392.4m, - 43% yoy, dragged by an unexpected S$40m impairment charge on its London mixed development and the Pan Pacific Tianjin and lower revaluation surplus (S$63m vs. S$263m). 
  • Excluding the impact of revaluations, the decline would have been more modest at -24% yoy due to a high base in FY14 (on sale of land in Malaysia). 
  • The group proposed a final DPS of 15 Scts, translating into a yield of 2.6%. 

■ Residential performance impacted by high base in FY14… 

  • Overall revenue fell 6% yoy to S$1.28bn, with residential revenue falling 15% yoy to S$577.5m due to a high base in FY14 following the sale of a land parcel in KL. Excluding this, residential revenue would have risen 27% yoy with billings from Katong Regency and other ongoing projects. 
  • Hotel turnover was lower on a poorer performance at Pan Pacific Perth and Parkroyal Yangon and weaker MYR and A$. This was partly offset by higher rental contributions with the opening of OneKM Mall. 

■ …but expected to recover in FY16 

  • We expect residential contributions to recover in FY16 with two projects – Thomson Three and Seventy St Patrick’s TOPing in 2Q-3Q16. Meanwhile, Riverbank @ Fernvale, Botanique at Bartley and Principal Garden are progressively seeing higher take-up. 
  • The group has locked in more than S$900m of attributable residential sales in 2015 which will be gradually recognised over the next 2-3 years. 
  • Furthermore, it plans to launch the recently won 505-unit Clementi Ave 1 site in 2017. 

■ Stable rental income 

  • On its recurrent income operations, it expects to renew 35% of its office leases in FY16, of which half have been pre-committed at slightly positive reversion rentals. An estimated 22% of its retail leases are also due to expire in FY16 and UOL has renewed c.20% to date. 
  • Meanwhile, there will be more Pan Pacific and Parkroyal hotels and serviced residence openings scheduled in 2017-19, where the current room count of 9,864 keys could be expanded by about 16%. 

■ Maintain Add 

  • We still like UOL for its diversified earnings business model with strong recurrent income base. 
  • With a low gearing of 0.29x, the group is well placed to replenish its landbank and tap into other opportunities. 
  • UOL has increased its stake in UIC to 44.3% (49.53% concerted basis) and we anticipate the former to continue inching up its holdings towards the 50% mark. 
  • Maintain Add with a slightly higher target price of S$8.26.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | 2016-02-29
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 8.26 Up 8.24