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.

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.

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.

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.

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 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 | http://research.itradecimb.com/ 2016-12-05

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 7.960 Same 7.960