UOL Group - CIMB Research 2017-08-07: Steady Ship

UOL GROUP LIMITED U14.SI

UOL Group - Steady Ship

UOL Group's 2Q/1H17 EPS was in line with expectations, at 28%/51% of our FY17 forecast.
Residential was the star contributor, making up 56% of revenue.
Ongoing projects continue to see improving take-up qoq; plans to launch 3 new projects in 2018F.
Rental income boosted by inorganic growth; modest outlook for hotels.

UOL reported 2Q17 net profit of S$109.4m, +59% yoy, in line with our expectations.
Stripping out fair value gains, core net profit was S$100m, +11% yoy. The improvement was due to higher associate contributions from UIC and better property development income.
Residential development activities made up c.56% of revenue 2Q residential development revenue rose 19% yoy to S$221.2m, thanks to better contributions from Principal Garden. The project was 71.8% sold as at end 2Q (vs. 55.4% in 1Q) and saw a marginal improvement in ASP. Riverbank @ Fernvale and Botanique at Bartley were almost fully sold. Meanwhile, The Clement Canopy saw another 20% taken up since its launch in 1Q, bringing its sales rate to 58.8%.

The group targets to launch its 2 remaining land parcels at Amber Rd and the former Raintree Gardens enbloc sites in 2018F. These 2 sites have a total saleable area of 699,000 sq ft with a potential of 890 units.
We reckon it can generate decent PBT margins when marketed given that these sites were purchased in 2H16 at lower land costs. In London, another 160 residential units at Bishopgate can also be marketed in 2018.

2Q rental revenue grew 2% yoy to S$56.4m, with additional contributions from 110 High Holborn, purchased in Jun 16. In Singapore, although occupancy remained at a high 90%, the group saw a small negative rental reversion for its office portfolio, similar to other landlord peers.
On the retail front, operating conditions for One KM Mall remained challenging given the new upcoming supply in the Paya Lebar area. Nonetheless, occupancy remained high, in excess of 95%.

Hotel operations saw a 1% yoy dip in revenue, dragged by a small decline in Singapore and Perth RevPAR. This was partly offset by higher RevPAR in Sydney and Melbourne.
Looking ahead, management indicated that the hospitality operating environment in Asia Pacific was likely to remain competitive. Hence, we expect this segment to deliver very modest growth in 2H17.

UOL’s RNAV is raised by 13% to S$11.29 as we adjust our target price for UOB post the recent set of results. In addition, we relook the valuation of its associate, UIC, particularly given the recent trend of cap rate compression for office assets.
UIC holds c.2m sq ft of office space in the CBD and suburban locations and will benefit from the adjustment in cap rates. In addition, we have adjusted for the potential increased stake to 48.96% in UIC following the proposed share swap with Haw Par.
Our target price for UOL is raised to S$9.03, still pegged to a 20% discount to RNAV.
We continue to like UOL for its diversified business model with strong cashflow generation. Its debt to equity ratio is healthy at 24%, which puts the group in a strong position to deploy capital for growth. We maintain our Add rating.
Downside risks include a slower-than-expected residential market recovery or cap rate expansion.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-08-07

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 9.03 Up 7.960