UOL Group Ltd (UOL SP) - Maybank Kim Eng 2017-05-29: Best Proxy To Higher Property Prices in Singapore

UOL GROUP LIMITED U14.SI

UOL Group Ltd (UOL SP) - Best Proxy To Higher Property Prices in Singapore

We raise our TP to SGD9.05 (from SGD8.30) on higher RNAV and narrower target discount of 15%. The RNAV uplift stems from higher ASPs for its residential projects and narrower cap rates for its investment properties.
With property prices at an inflection point, we expect RNAV discounts to narrow across the sector. With the biggest Singapore exposure among large cap developers, UOL remains the best proxy to a price rebound in the country.

We raise our ASP assumptions for unsold stock by 1-6% with the most upside for unlaunched projects. We value the redevelopment of Raintree Gardens and 45 Amber Road at SGD1,600 psf and SGD1,800 psf.
We lower our cap rate assumptions by 25-50bps and value its investment properties with cap rate assumptions of 3.50%-3.75% for office and 4.75%-5.00% for retail. This remains conservative when compared to cap rates of 3.2% for office and 4.2% for retail in recent transactions.
RNAV is raised from SGD10.26 to SGD10.66.

We continue to like the defensive positioning of UOL. The company’s mid-to-mass market focus in the residential market allows it to achieve swift sales, which leads to quick inventory turnover.
We see good earnings visibility from its portfolio of commercial properties, hotels and investments that produce SGD300m+ of recurring EBITDA every year.
We have not incorporated any upside from a potential restructuring of its cross-holdings with related entities in the medium term.
Valuations are undemanding at 0.67x P/BV and 35% discount to RNAV.

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/ 2017-05-29

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 9.05 Up 8.300