UOL Group - CIMB Research 2016-05-13: Residential revenue dominates

UOL Group - CIMB Research 2016-05-13: Residential revenue dominates UOL GROUP LIMITED U14.SI 

UOL Group - Residential revenue dominates 

  • 1QFY16 net profit slightly below, at 17% of our FY16 forecast. 
  • Thinner operating margins with a higher blend of lower-margin residential development contributions. 
  • Hotel and rental income showed slower but positive yoy growth. 
  • New launches in China and progressive development of ongoing projects to extend earnings visibility. 
  • Maintain Add with unchanged target price of S$8.26. 

Results slightly below 

  • UOL’s 1QFY16 net profit of S$77m (US$56.3m; +4% yoy) was slightly below expectations, making up 17% of our FY16 forecast. 
  • While revenue rose 39% yoy to S$330.1m (US$241.5m), weaker operating margins due to a higher blend of lower margin residential development business and reduced JV contributions, following the completion of Archipelago, resulted in a smaller 4% improvement in net profit. 

Thinner margins from residential developments 

  • About half of 1Q revenue came from residential activities (vs. 32% pcp) and was derived from more volume sales and progressive recognition of ongoing projects. 
  • The group sold an estimated 115 units, mainly from Riverbank @ Fernvale (66.5% sold), Botanique at Bartley (79% sold) and Principal Garden (27.1% sold). These were achieved amidst a slightly more competitive pricing strategy. 

Recurrent income grew from higher rental and hotel contributions 

  • Rental revenue rose 4% yoy to S$55.5m amidst a slightly positive rental reversion environment. 
  • To date, the group has locked in about two thirds of its office and c.20% of its retail expiries for this year. 
  • As with other landlords, UOL would look to adopt a tenant retention strategy to keep its buildings occupied. 
  • Hotel operations continued to improve with a 2% hike in revenue to S$105m, thanks to 4% yoy growth in overall Revpar on higher occupancy. 

Earnings visibility extended on planned new launches 

  • Outlook remains challenging amid a dampened Singapore residential market and subdued office sector. 
  • Underpinning earnings visibility will be the completion of Thomson Three and Seventy St Patrick’s in 2-3Q16. 
  • We expect UOL to continue its competitive pricing strategy to move more residential inventory. 
  • It plans to launch the 398-unit residential component of its mixed development in Shanghai this year and market the 505-unit Clementi Ave 1 site in 2017. This will extend earnings visibility. 

Maintain Add 

  • We retain our Add call with an unchanged target price of S$8.26, based on a 20% discount to RNAV of S$10.33. 
  • We still like UOL for its diversified business model with strong recurrent income and low gearing of 0.27x.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-05-13
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 8.26 Same 8.26