UOL Group - CIMB Research 2017-06-23: UOL And Haw Par Corp In Share Swap For UIC Shares

UOL Group - CIMB Research 2017-06-23: UOL And Haw Par Corp In Share Swap For UIC Shares UOL GROUP LIMITED U14.SI

UOL Group - UOL And Haw Par Corp In Share Swap For UIC Shares

  • UOL announced an option agreement which, if exercised, will see UOL issue 27.3m new shares to Haw Par in exchange for 60m UIC shares.
  • On completion, UOL's stake in UIC will increase from 44.7% to 48.94%.
  • The transaction allows UOL to gain a significant minority interest in UIC and, we estimate, a 3% uplift in UOL's RNAV to S$9.98.

Swapping new UOL shares for UIC shares

  • UOL announced that it has entered into an option agreement with Haw Par Corp to acquire 60m UIC shares from Haw Par. In return, UOL will issue 27.273m new shares to Haw Par at a ratio of 2.2 UIC shares for every one new UOL share.
  • The deal values UIC shares at S$196.7m (vs. its NTA of S$265.8m). The share swap ratio is arrived at by taking the VWAP of UOL and UIC shares for periods of between 1 day and 12 months leading up to 20 Jun 2017, as well as the unaudited NAV and NTA of UOL and UIC. 
  • The transaction is subject to shareholder and regulatory approvals with all conditions to be satisfied by the long stop date of 31 Oct 2017.

UOL's stake in UIC rises to 48.94%, no general offer triggered

  • Post transaction, UOL will own a total 48.94% stake in UIC (from 44.7% previously). This will not trigger a general offer for the remaining UIC shares. The Securities Council of Singapore has waived UOL's obligation to make a mandatory general offer for UIC for the proposed transaction provided its shareholding in UIC does not exceed 49%. 
  • Following the share swap, Haw Par Corp will hold 9.57m UIC shares (0.67% of UIC) and 72.05m UOL shares (8.58% of the enlarged UOL share cap).

Increased stake for greater strategic interest alignment

  • This share swap enables UOL to acquire a significant minority stake in UIC, while conserving its cash reserves to pursue future growth opportunities. 
  • The increased stake in UIC will also expand the group's access to UIC's commercial property portfolio as well as enable greater control over the deployment of UIC's resources and further align strategic interest and collaboration, such as land banking and acquiring completed properties.

Positive impact on UOL

  • We estimate that this transaction will have a minor accretive impact on UOL's EPS as the recognition of additional income will be partly offset by the 3.3% expansion in UOL’s share base. However, from an RNAV perspective, we estimate that this transaction will result in a 3% uplift in UOL's RNAV to S$9.98.

Maintain Add

  • We continue to like UOL for its diversified earnings base and exposure to the Singapore residential and commercial market that makes up circa 70-75% of its asset backing. 
  • We maintain our Add rating and target price of S$7.96, premised on a 20% discount to RNAV. 
  • Key catalyst for UOL's share price performance would be continued good sell-through rate for its residential projects. 
  • Key risk is a slowdown in the residential transaction volume.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-06-23
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 7.960 Same 7.960