UOL Group - DBS Research 2016-05-13: Deep value play

UOL GROUP LIMITED U14.SI

UOL Group - Deep value play

1Q16 results in line; earnings visibility a key plus in an uncertain operating climate
Hotel portfolio bucking trend
Cheapest large cap developer in town

Trading at an attractive 0.5x P/NAV, which is close to its – 2 SD historical average and one of the cheapest large-cap landlords in Singapore, we believe that negatives from a weakening operating outlook has been priced in.
Maintain BUY, S$7.39 TP is pegged to a 30% discount to our RNAV of S$10.36.

Gross revenues and net profit came in 39% and 4% higher y-o-y at S$330.1m and S$77.1m respectively.
The better performance was mainly due to higher income recognised from property development segment (S$164.3m,+112% y-o-y) as development milestones were hit, mainly in Singapore and The Esplanade Tianjin. This was further supported by steady returns from its other divisions, namely property investments (S$103.8m, + 4%) and hotels (S$104.9m, + 2% y-o-y).

UOL derives a significant c.50% of revenue from its retail, office and hotel segments which should continue delivering stable cashflows.
We expect its portfolio of commercial properties (office & retail) to be resilient in the face of headwinds from both the office and retail sectors.
For offices, this is mainly due to their location along the fringes of the CBD where rental volatility is lesser, while its retail assets have a unique niche in the children and education sectors which has relatively inelastic tenant demand.

Our TP of S$7.39 is pegged to a 30% discount to our RNAV of S$10.56. Maintain BUY.

Economic slowdown. The downside risk to our projections is if residential sales are slower than our projections or if commercial properties and hotels operations are impacted by slower-than-projected growth in rental/room rates.

Derek Tan DBS Vickers | Rachel Lih Rui Tan DBS Vickers | http://www.dbsvickers.com/ 2016-05-13

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 7.39 Same 7.39