UOL Group - DBS Research 2017-02-28: One of the cheapest landlords in Singapore

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UOL GROUP LIMITED U14.SI

UOL Group - One of the cheapest landlords in Singapore

• FY16 results below expectations, impacted by fair value losses.
• New launches mostly in 2018.
• UOL most aggressive in land-banking.
• FY16 dividend of 15 Scents was flat y-o-y.

Valuations still attractive. 

• We maintain our BUY rating on UOL Group (UOL) based on its attractive valuation of c.0.65x P/NAV, which is below the low end of its historical trading range, making it one of the cheapest large cap landlords in Singapore. 
• The successful launches of recently purchased land sites in the enbloc market will be re-rating catalysts for the stock. 
• We have lifted our TP to S$7.64 based on a 30% discount to RNAV of S$10.90 as we updated the valuation with newly acquired projects.

FY16 results below expectations; impacted by fair value losses.

• UOL’s FY16 net profit fell 27% y-o-y to S$287m, mainly due to fair value losses recorded vs gains in FY15. Property sales had halved in FY16. However, management believes the Singapore property market has stabilised and UOL has been more aggressive in land banking than the other large cap developers. 
• Key positives from the results were: 
  1. revenue growth from all divisions, except Investments, 
  2. rental reversions were largely positive with stable occupancy rates, and 
  3. overall RevPAR was up 2%. 
• Key negatives:
  1. property sales had halved, 
  2. lower margins, and 
  3. challenging hospitality sector.

Most aggressive in landbanking in Singapore; bulk of new launches in 2018. 

• The Clement Canopy (1Q17; 505 units) was officially launched last weekend (25 Feb 16). Management expects to launch Raintree Garden, Amber Road and Bishopsgate in 2018.
• Management continues to keep an eye on the take-up rates from The Clement Canopy.

Valuation

• Maintain BUY on attractive valuations. 
• We raise our TP to S$7.64, pegged to a 30% discount to our RNAV of S$10.90, taking into account new properties acquired.

Key Risks to Our View

• Economic slowdown. The downside risk to our projections is if residential sales are slower than our projections or if commercial properties and hotels operations are impacted by slower-than-projected growth in rental/room rates.

Derek TAN DBS Vickers | Rachel TAN DBS Vickers | http://www.dbsvickers.com/ 2017-02-28

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 7.64 Up 7.200