OUE Limited - OCBC Investment 2016-05-13: Results Below Expectations

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OUE LIMITED LJ3.SI 

OUE Limited - RESULTS BELOW EXPECTATIONS

• 1Q16 results missed expectations
• Lowering FY16/17 forecasts
• FV estimate dips to S$2.17 from S$2.32

Lowering FY16 and FY17 forecasts

• OUE reported that its 1Q16 PATMI declined 89.3% YoY to S$8.3m mainly due to fair value losses from the mark-to-market of investments and the absence of a one-time gain from the sale of Crowne Plaza Changi Airport which was booked in 1Q15. 
• That said, we saw the group’s 1Q16 revenues clock a marginal 13.4% YoY increase to S$122.5m mostly due to higher contributions from the group’s investment division, which consolidated revenues of One Raffles Place after additional interests in OUB Centre Limited were acquired in Oct 15, and also marginally higher revenues from the group’s hospitality operations (up 3.0% YoY to S$51.7m in 1Q16). 
• These were, however, partially offset by lower contributions from the property development division. 
• 1Q16 PATMI constitutes only 13.1% of our FY16 forecast; we judge this set of results to be a miss versus expectations and lower our FY16 and FY17 PATMI forecasts by 27.7% and 16.9% to S$45.8m and S$54.2m, respectively.

Asset enhancement works progressing smoothly

• Management reported that the construction of the Crowne Plaza Changi Airport Extension is nearing completion and will attain a TOP status shortly, after which we expect the asset to be divested to OUE Hospitality REIT. 
• In addition, the group is conducting asset enhancement works at OUE Downtown to convert it into a mixed-use development (with retail, office and serviced residences components) and this is expected to be completed by end 2016. 
• Finally, enhancement works for the lobby and observation deck of the US Bank Tower are also expected to be completed by June 2016. 
• The occupancy rates of OUE Downtown and the US Bank tower are at 88.0% and 74.2% as at end Mar 2016, respectively. 
• As we update our valuation model for lower earnings forecasts and higher discount rates, our fair value estimate dips to S$2.17 from S$2.32.
• Maintain BUY.

Eli Lee OCBC Securities | http://www.ocbcresearch.com/ 2016-05-13

OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 2.17 Down 2.32