UOL Group Ltd (UOL SP) - Maybank Kim Eng 2017-01-24: Recycling Capital To Fresh Site

UOL GROUP LIMITED U14.SI

UOL Group Ltd (UOL SP) - Recycling Capital To Fresh Site

UOL has acquired a freehold site on 45 Amber Road. We believe the price it paid is reasonable, considering its good location. UOL will be able to recycle capital released from its recently completed Seventy Saint Patrick’s to a fresh development.
Our initial estimates suggest RNAV accretion of 2 cts/share. We keep our estimates pending further details.
Maintain BUY and SGD7.39 TP, at an implied 24% discount to RNAV.

UOL is our top sector pick. Risks to our view include overpaying for land and Sharp fall in property prices.

UOL has been granted an option to purchase 45 Amber Road for SGD156m.
The 69,858 sf freehold site is currently a horticultural retail centre but has been zoned for residential use under URA’s 2014 Master Plan with a plot ratio of 2.1. This implies it may be redeveloped into a condo with a potential GFA of 146,702 sf for a unit land cost of SGD1,063 psf before development charges. This would match the SGD1,056 psf ppr land cost for Marine Blue’s site that CapitaLand (BUY, TP SGD3.46) acquired in 2011.

The property is sandwiched between The Shore Residences and The Sea View, two condos with secondary market prices of about SGD1,600 psf.
Roxy Pacific (Not Rated) marketed nearby 25-unit Straits Mansion at about SGD1,700 psf last year. It has sold 21 units to date. Marine Blue was launched in early 2015 at SGD1,800 psf. It has sold just 38 of its 124 units. Benchmarked to these two, we believe SGD1,750 psf would be a good selling price to ensure good sales velocity for UOL’s latest project as well as decent profitability.

While the site is not particularly cheap against its potential selling price, we believe its good location will ensure healthy demand. It is within walking distance of Parkway Parade, one of the largest suburban shopping malls in Singapore, and two upcoming MRT stations - Marine Parade and Tanjong Katong - scheduled for 2023 completion.
We think UOL will be able to capture any rebound in home prices beyond their near-term weakness.

Monetisation of property assets.
Rebound in home sales.
Unwinding or restructuring of cross-holdings in related parties like UOB, UIC and Haw Par.

Overpaying for land.
Poor execution of development projects.
Sharp increase in interest rates which could dampen demand for properties and drive down asset prices.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-01-24

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 7.390 Same 7.390