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.

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%.

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.

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.

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%.

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 | http://research.itradecimb.com/ 2016-02-29

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 8.26 Up 8.24