UOL Group Ltd (UOL SP) - Maybank Kim Eng 2017-05-15: More Legs To This Rally

UOL GROUP LIMITED U14.SI

UOL Group Ltd (UOL SP) - More Legs To This Rally

1Q17 was a good quarter, with over half of UOL’s new launch, The Clement Canopy, already sold.
The recently acquired site at 45 Amber Road adds to its launch pipeline in 2018 and offers stronger earnings visibility.
The recent purchase of a new Australian hotel expands its presence in Melbourne andadds to its recurring income base.

We continue to see good value in the stock with 17% upside to our revised TP after a stellar 21% increase since our initiation in early Dec last year.
UOL’s mid-to-mass market focus ensures quick inventory turnover which lowers development risk.
We raise TP to SGD8.30 (19% discount to RNAV of SGD10.26) from SGD7.93 to reflect the higher market value of UIC and Maybank KE’s latest TP for UOB.
UOL remains our top sector pick.

We see no surprises from its latest results announcement. The Clement Canopy had a good launch with 266 units (53% of total) sold by the end of 1Q17.
UOL has completed the renewal of all retail leases due for expiry this year. However, amidst the challenging retail landscape, management has guided for more profit sharing schemes with tenants and expects reversions to be negative.

Following the enbloc purchase of Raintree Gardens, UOL has bought another residential site at 45 Amber Road. We believe strong take-up at Seaside Residences and improving sales at Marine Blue bodes well for this project.
On the hospitality front, the group will expand its presence in Australia with its recent purchase of Hilton Melbourne South Wharf. At AUD230m or AUD580k per key, this deal is reasonably priced at 7% below Frasers Hospitality’s purchase of Novotel Melbourne in Sep 2016. A planned rebranding of the hotel will expand its presence in Melbourne.

Including pro-rata exposure via UIC, we estimate that the stock offers a 30% exposure to the Singapore office market. Hence, we see UOL as a beneficiary of improving sentiment in this sector.
Furthermore, by accumulating shares in UIC at its depressed share price, we believe UOL is effectively buying into its properties at half of their value.

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/ 2017-05-15

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 8.30 Up 7.930