UOL Group - CIMB Research 2016-12-05: Business as usual

UOL Group - CIMB Research 2016-12-05: Business as usual UOL GROUP LIMITED U14.SI

UOL Group - Business as usual

  • Deploying capital into higher yielding recurring income properties.
  • Residential projects selling steadily, slight risk from UIC’s residential portfolio.
  • Maintain Add with an unchanged target price of S$7.96.

Strong capital deployment

  • UOL has been actively deploying capital in 2H2015-16 with an attributable S$710m worth of asset acquisitions. These properties are located in Singapore (45%) and US (55%) and include the joint purchase of Holborn Island in London and the Raintree Garden enbloc site in Singapore. These could increase its total asset base to S$12bn or a 3.3% uplift. 
  • Its balance sheet remains healthy, with an estimated gearing of 0.34x post acquisition.

Rental income underpins stable earnings base

  • Property investment income (including UIC’s associate contributions) made up an estimated 58% of FY15 group EBIT. This is expected to be bolstered by new contributions from Holborn Island, by 2-3% on an annual basis. 
  • Meanwhile, its Singapore commercial and retail properties are enjoying high occupancy, in excess of 95% and positive rental reversions of 2-7%. This provides a strong and stable income base.

Robust residential take-up, selectively building up landbank 

  • Most of UOL’s residential projects are selling well, ranging from a 43% sales rate for Principal Garden to 96% for Botanique at Bartley. 
  • UOL plans to launch the 505-unit The Clement Canopy at Clementi Ave 1 in 1Q17. 
  • The purchase of the Raintree Garden land parcel should further extend development earnings visibility. 
  • In terms of ABSD penalty, UOL could be impacted by associate UIC’s projects such as Mon Jervois, Pollen & Bleu and Alex Residences, if they are not fully sold in 2017.

Incrementally raising stakes in UIC

  • UOL/Wee family has been incrementally raising their total deemed stake in UIC to 49.63%, closer to the 50% takeover trigger mark. We reckon the potential for a corporate exercise exists. 
  • UIC is one of the largest commercial landlords in Singapore, with a portfolio of 2msf of NLA as well as a majority share in c.2,000 hotel rooms through Marina Centre Holdings.

Maintain Add

  • Maintain Add with a target price of S$7.96, based on a 20% discount to RNAV. 
  • We continue to like UOL for its stable income profile and visible residential earnings.
  • There is also a potential for corporate action as the UOL/Wee family stake in UIC has moved closer to 49.63%. 
  • Downside risks may come from more revaluation adjustments from a declining office rental market.

LOCK Mun Yee CIMB Research | Yeo Zhi Bin CIMB Research | 2016-12-05
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 7.960 Same 7.960