UOL Group - CIMB Research 2016-10-07: On a buying spree

UOL Group - CIMB Research 2016-10-07: On a buying spree UOL GROUP LIMITED U14.SI

UOL Group - On a buying spree

  • Buying two properties, in UK and Singapore, worth an attributable S$380m.
  • Total capital deployment of S$710m in the past 12 months supported by strong balance sheet.
  • Building up recurring income with latest Holborn Island purchase.
  • Raintree Gardens enbloc site could extend residential earnings visibility over the next few years.
  • Maintain Add with slightly higher target price of S$7.97. 

Strong capital deployment 

  • The past 12 months was particularly fruitful for UOL in terms of capital deployment, with an attributable c.S$710m of asset acquisitions, in Singapore (45%) and UK (55%). This includes recent joint purchases of Holborn Island and Raintree Garden enbloc site, with UIC, for c.S$760m total or an attributable 50% share of c.S$380m. These could increase its 2Q16 total asset base by 3.3% to S$12bn and earnings-accretive, in our view.
  • Balance sheet stays healthy with gearing at 0.34x (vs. 0.29x previously) post acquisition.

Acquiring third UK property 

  • UOL and UIC purchased Holborn Island, a mixed office/retail property in London, for £229.6m. The 348,088 sq ft building is located within walking distance of Chancery Lane and Farringdon tube stations. 
  • According to media reports, this property has an initial net yield of 5.75% and should bolster the group’s recurrent income base with its a long lease expiry profile. This is UOL’s third property in UK and increases the group’s exposure to the country to c.9%.

Building Singapore landbank via enbloc parcel 

  • UOL and UIC successfully tendered for the Raintree Gardens enbloc site in Pasir Panjang on a 50/50 basis. We think this a positive as it extends UOL's residential income visibility. The acquisition is subject to approval by Strata Titles Board and topping up the land tenure to 99 years from the present remaining 70 years. Hence, we expect the development to be launch-ready only in the next 1-2 years.

Adding c.1 Sct to RNAV 

  • The tender price for Raintree Gardens of S$334.2m, together with an estimated additional payment to top up the land tenure to 99 years could result in a total land cost of S$759psf ppr, based on the allowable GFA of 563,940sq ft. We estimate breakeven cost to be cS$1,200psf and using ASP of S$1,350psf, this project can generate a PBT return of c.10%. We estimate this project can add 1 Sct to our RNAV estimate when completed and fully sold.

New residential launch extends residential earnings visibility 

  • In the meantime, UOL is looking to market its 505-unit Clementi Ave 1 project in 1Q17. We reckon breakeven cost could approximate $1,200psf vs. ASP of S$1,300-1,400psf.
  • These contributions would bolster locked-in profits from ongoing projects where sales improved at a steady clip, with Botanique at Bartley at 97% sold, Riverbank @ Fernvale at 92% and Principal Garden at 45%.

Maintain Add 

  • We adjust our FY17-18F earnings to factor in the latest purchases and raise our RNAV by 1 Sct to S$9.96. 
  • Accordingly, our TP increases to S$7.97, still pegged to a 20% discount to RNAV. 
  • Apart from strong capital deployment, another catalyst could materialise should any potential corporate exercise between UOL and UIC develops.
  • UOL has purchased another 2.33m UIC shares in the open market between Aug-Oct 16, raising the concerted UOL/Wee family stake to c.49.4%.

LOCK Mun Yee CIMB Research | Yeo Zhi Bin CIMB Research | 2016-10-07
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 7.97 Up 7.960