UOL Group Ltd (UOL SP) - Maybank Kim Eng 2018-02-28: Bulking Up From UIC Consolidation

UOL Group Ltd (UOL SP) - Maybank Kim Eng 2018-02-28: Bulking Up From UIC Consolidation UOL GROUP LIMITED U14.SI

UOL Group Ltd (UOL SP) - Bulking Up From UIC Consolidation


Maintain BUY on higher Target Price of SGD10.40 

  • UOL reported 4Q17 results with underlying property performance inline. The increase in DPS to 17.5cts was a positive surprise. 
  • In the absence of major acquisitions, we see scope for further capital management. We rejig our model to build in the consolidation of United Industrial Corp (UIC) and see a revenue surge in 2018. 
  • We raise RNAV to SGD11.55 (from SGD10.95) after incorporating the latest data points and rolling forward our valuation basis to 2018E. Our Target Price is lifted 6% to SGD10.40, based on an unchanged RNAV discount of 10%. 
  • UOL remains our top large-cap pick amongst Singapore developers. Maintain BUY.



Underlying performance inline; Higher DPS 

  • Underlying performance was inline. UOL raised DPS to 17.5cts (FY16: 15.0cts) - a level that management aims to maintain. 
  • With a low net gearing of just 0.21x, we see scope for more capital management in the absence of major acquisitions. In particular, United Industrial Corp (UIC) is very lightly geared with just SGD0.5b of debt against a SG8.3b asset base. This debt headroom could come in handy when pursuing redevelopment and repositioning opportunities in the future. 
  • UOL also announced that it will be redeveloping the 206-room Pan Pacific Orchard into a new 340-room hotel with a target yield of 6-7%.


Revenue to surge in 2018 

  • We expect a significant pick-up in revenue in the year ahead. Notably, the impending completion of Park Eleven and the launch of its second phase will drive strong recognition at this project. 
  • Apart from that, the full-year consolidation of UIC will lift earnings accordingly. However, the impact on UOL’s bottom line will be smaller due to its minority interest and upfront recognition for revaluation adjustments made in 2017.


RNAV raised to SGD11.55 

  • We raised RNAV to SGD11.55 (from SGD10.95) after incorporating latest data points and rolling over forward valuation basis to 2018E. 
  • The key driver of this upwards revision is higher market price of United Industrial Corp (UIC SP, Not Rated), higher Target Price for UOB (UOB SP, Rating: BUY, Target Price: SGD29.33, see report: United Overseas Bank (UOB SP) - Moving Steadily) and UOL’s share of revaluation surplus in the Marina Centre Holdings and Aquamarina, which were previously held at book value.



Swing Factors


Upside

  • Monetisation of property assets.
  • Rebound in home sales.
  • Unwinding or restructuring of cross-holdings in related parties like UOB, UIC and Haw Par.

Downside

  • 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/ 2018-02-28
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 10.40 Up 9.850



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