UOL Group - DBS Research 2016-08-05: Valuations still attractive

UOL Group - DBS Research 2016-08-05: Valuations still attractive UOL GROUP LIMITED U14.SI 

UOL Group - Valuations still attractive

  • 1H16 core net profit fell 3% y-o-y, below expectations.
  • Lower residential sales of 299 units vs 413 units in 1H15; 3 new launches planned for 2H16- FY17.
  • Rental reversions stable, RevPAR marginally down.
  • Valuation attractive at 0.6x FY16F P/NAV.



Potential headwinds ahead; but valuations still attractive. 

  • Despite the weak operating outlook and potential headwinds, we maintain our BUY rating on UOL Group (UOL) on its attractive valuations. 
  • The stock currently trades at 0.6x FY16F P/NAV and 13x FY17E P/E, both below the lower end of its historical range, making it one of the cheapest large cap landlords in Singapore.


Weak 1H16 results due to fair value losses and lower margins. 

  • UOL’s 1H16 net profit fell 36% y-o-y to S$145.9m mainly due to fair value losses (S$19.6m) and net acquisition costs (S$7.1m). 
  • Core net profit fell 3% y-o-y to S$167.2m, and forms 40% of streets’ full year estimates. 
  • Key positives are 
    1. 19% revenue growth from all divisions, and 
    2. rental reversions were flat to positive and occupancy rates remained stable. 
  • Key negatives are 
    1. margin compression from property development, 
    2. lower residential property sales, and 
    3. RevPAR in all markets were marginally lower except for hotels in Australia.


New launches in 2H16/2017. 

  • Management aims to launch Park Eleven, Shanghai (398 residential units) in 3Q16. In 2017, UOL plans to launch its remaining Singapore property development project at Clementi Ave 1 (1Q17; 505 units), and Bishopgate, London (160 units). 
  • UOL continues to remain selective and adopts a value-driven strategy in landbanking, given the competitive bidding environment due to the lower number of sites available in the government land sales program.


Valuation:

  • We lower FY16E-FY18E earnings estimates by 10% to 23%, taking into account lower revenue from property development, and lower margins. 
  • We reduce our target price to S$7.20 from S$7.39 previously. Maintain BUY on attractive valuations.


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.




Rachel Lih Rui Tan DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2016-08-05
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 7.20 Down 7.39


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