UOL Group - CIMB Research 2018-02-27: Onward And Upward

UOL Group - CIMB Research 2018-02-27: Onward And Upward UOL GROUP LIMITED U14.SI

UOL Group - Onward And Upward

  • UOL Group's 4Q/FY17 core net profit made up 24%/99% of our FY17 projections, in line with expectations.
  • It is planning for two new residential launches in FY18.
  • Large recurring income base post United Industrial Corp (UIC) consolidation, AEIs to improve asset performance.
  • Maintain ADD with a slightly higher Target Price of S$9.67.

4QFY17 results in line 

  • UOL reported a 131%/54% y-o-y jump in 4Q17 revenue and net earnings, including a full quarter’s consolidation of United Industrial Corp (UIC) contributions and fair value gains. 
  • For FY17, the group reported a 210% jump in net profit to S$891m with the consolidation of four months of contributions from UIC as well as negative goodwill of S$542m. Stripping these one-offs, FY17 core net profit would have been S$356m, up 10% y-o-y, and 99% of our FY17 forecast. 
  • UOL is also proposing a final DPS of 17.5 Scts, translating into a yield of 2.1%.

Residential sales continue to track higher, 2 new launches in FY18 

  • In terms of operations, FY17 residential development revenue surged 59% y-o-y to S$1.2bn with added sales from Pollen & Bleu, Alex Residences, V on Shenton and Mon Jervois. Meanwhile, Principal Garden is almost fully sold and The Clement Canopy is 84% taken up to date. 
  • UOL plans to launch its 139-unit Amber 45 project in Apr and roll out the 729-unit Potong Pasir site in 2H18. This should further provide residential earnings visibility when launched.

Improving office performance, selective AEIs on retail assets 

  • Rental revenue expanded 45% to S$327m with the consolidation of United Industrial Corp’s income. 
  • As with the other office landlord peers, portfolio occupancy remains high at between 90- 100%. While there was negative rental reversion in FY17, the gap has narrowed in FY18 with the recovery in the office leasing market. 
  • UOL plans to conduct selective AEI on its retail portfolio, particularly at One KM, to improve operating performance post the first rental cycle. We anticipate rental contributions to remain relatively stable.

Two new hotels to expand income stream in 2-3 years’ time 

  • Hotel operations reported a 3.6% rise in Revpar, led by Singapore, China and Oceania.
  • To optimise asset returns, UOL plans to redevelop the Pan Pacific Orchard into a new 340-room hotel starting in 2Q18 with expected completion by 2021, while the Pan Pacific London is anticipated to be completed in 2020. 
  • Looking ahead, the group expects its hotels in the Asia Pacific region to benefit from the improving global economic outlook, although China and Myanmar may remain challenging. 

Maintain ADD 

  • We adjust our FY18-19 EPS estimates post results. Our RNAV is lifted to S$12.09 to include the higher Target Price for UOB and updating for the latest balance sheet. Accordingly, our Target Price is raised to S$9.67, still based on a 20% discount to RNAV. We maintain our ADD rating. 
  • Balance sheet is healthy with a 0.21x net debt to equity ratio which could provide upside catalysts if it taps into accretive new investment opportunities. 
  • Downside risks include a slower-than-expected pace of residential launches and office market recovery.

LOCK Mun Yee CIMB Research | 2018-02-27
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 9.67 Up 9.620