UOL Group - CIMB Research 2016-11-10: 3Q16 an uninspiring quarter

UOL Group - CIMB Research 2016-11-10: 3Q16 an uninspiring quarter UOL GROUP LIMITED U14.SI

UOL Group - 3Q16 an uninspiring quarter

  • 3Q16 bottomline impacted by lower margins even as revenue continued to climb
  • Residential contributions underpinned by higher sales from ongoing projects
  • High occupancy of commercial portfolio maintained; hotel performance boosted by overseas portfolio
  • Forward residential visibility extended with purchase of Raintree Garden enbloc site
  • Maintain Add, with a slightly lower target price of S$7.96. 

Higher revenue offset by margin compression 

  • 3Q16 net profit of S$87.1m was 14% lower yoy despite an 11% increase in revenue to S$393.4m. Revenue for the quarter was higher yoy across all business segments but overall margin was lower yoy due to the skew towards lower-margin residential revenue.
  • There was a 35% yoy decline in associate and JV contributions due to a S$3.9m loss from a residential project as well as completion of ongoing developments during the quarter. 9M16 net profit of S$233m accounted for 55% of our full-year forecast.

Ongoing projects continue to enjoy higher take-up rate 

  • Residential revenue rose 19% yoy to S$206.6m in 3Q with progressive recognition of billings and higher take-up rate from ongoing projects such as Botanique at Bartley (96% sold), Riverbank @ Fernvale (78% sold), and Principal Garden (43% sold). The Park Eleven development in Shanghai is also 21% sold at an average ASP of Rmb77,000psm.

Rental and hotel contributions holding up 

  • Rental revenue rose 2% yoy in 3Q as the group’s office and retail portfolio continued to enjoy an average 2-7% positive rental reversion with occupancy remaining above 95%.
  • The recent acquisition of Holborn Island in London should bolster the group’s rental income base, in our view. Hotel revenue saw 4% yoy growth, thanks largely to robust performance at its Australian hotels.

Extending residential visibility from recent landbanking 

  • Looking ahead, with most of its residential projects well sold and the Riverbank @ Fernvale on track to achieve completion status in 1Q17, UOL plans to launch a new 505-unit development, The Clement Canopy, in 1Q17. The acquisition of Raintree Garden enbloc site should also extend its residential earnings visibility. 
  • With a gearing of 0.28x, the group can continue to leverage its balance sheet for new investments, in our view.

Maintain Add 

  • We lower our FY16-18F EPS by 3.3-4.2% to pace in slower residential recognition and weaker rental income. Imputing this, and our slightly moderated TP for UOB, our TP for UOL adjusts to S$7.96, still based on 20% discount to RNAV. 
  • We continue to like UOL for its high recurrent income base. There is also potential corporate action as the deemed stake of UOL plus Wee family in UIC has inched closer to 49.5%. 
  • Downside risk may come from more revaluation adjustments from a declining office rental market

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-11-10
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 7.96 Down 7.970