UOL Group - CIMB Research 2017-02-26: Dragged by one-offs

UOL GROUP LIMITED U14.SI

UOL Group - Dragged by one-offs

FY16 net profit of S$287m is below our expectations, hampered largely by writedowns and slightly lower residential profits, partly offset by higher rentals.
Ongoing residential projects continue to be well taken up, Clement Canopy to be launched end-Feb 17.
Recent land banking has built up a 915-unit residential pipeline.

UOL’s 4Q/FY16 net profit of S$54m/S$287m came in below expectations at 13%/70% of our FY16 forecast, dragged by revaluation losses, write-downs, lower residential and the absence of special dividends from its UOB shares.
UOL took a net S$37.2m haircut from revaluation deficit as well as write-off of acquisition cost and impairment charges from its UK properties and Bishopsgate project. Excluding this, FY16 earnings would have been S$324.2m, down a modest 7% yoy.
UOL has proposed final DPS of 15 Scts.

Residential EBIT was lower to S$54.6m on progressive billings from ongoing projects and in the absence of new launches in FY16.
The group continued to improve sales at Riverbank @ Fernvale (85% sold), Principal Garden (57% sold) and Botanique at Bartley (99% sold). Park Eleven in Shanghai is also 32% taken up at an ASP of Rmb77,000 psm.

Rental EBIT improved marginally as the office and retail portfolio continued to enjoy modest positive rental reversions as well as some additional income from its new UK properties. It has 20% of its office and 37% of its retail NLA to be renewed in FY17.
With the exception of OneKM, we expect rentals to remain largely stable.
Meanwhile, hotel contributions dipped by 2% yoy, dragged by lower Revpar in Singapore and SEA, partly offset by higher North America and Oceania hotels. Outlook continues to be challenging.

UOL will be launching the 505-unit Clement Canopy at end-Feb 17 and buying interest in the project appears strong given its good location in Clementi.
It has recently acquired the Raintree Gardens enbloc site and another land parcel along Amber Rd. These will add another c.915 units to the group’s residential pipeline and extend income visibility.
With gearing of only 0.24x, it can continue to leverage its balance sheet for new investments.

We lower our FY17-18 EPS by 12.7%/3.2% to factor in a slower residential sales pace and our RNAV to S$9.95.
Our target price of S$7.96 is pegged at a 20% discount to RNAV.
We continue to like UOL for its high recurrent income base, making up c.83% of EBIT (including UIC).
There is also potential corporate action as the deemed stake in UIC (including the Wee family) inches closer to 49.5%.
Downside risk includes a slower-than-expected residential and office rental market.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-02-26

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