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

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



Deep value play. 

  • 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.


Steady returns in 1Q16; one of the more resilient developers. 

  • 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).


Commercial portfolio is resilient in a weak market. 

  • 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.


Valuation:

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


Key Risks to Our View:

  • 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


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