UOL Group Ltd - Maybank Kim Eng 2018-04-27: Doubling Its Pipeline

UOL Group Ltd - Maybank Kim Eng 2018-04-27: Doubling Its Pipeline UOL GROUP LIMITED U14.SI

UOL Group Ltd - Doubling Its Pipeline


Maintain BUY; Raising residential exposure

  • A UOL-led consortium emerged as the sole bidder for a city fringe site at a government land tender. The developer has effectively doubled its saleable resource with this deal that could yield 1,125 housing units. 
  • The SGD1b price tag translates into a reasonable land rate of SGD1,138 psf ppr. Based on its effective stake of 65% in this project, we estimate a development surplus of 21 cts per share. 
  • We keep estimates unchanged for now pending full model update. Maintain BUY and SGD10.40 Target Price, based on a 10% discount to RNAV of SGD11.55.



Sole bidder for city fringe site

  • UOL will take a 50% stake in this project, while its 49.8%-owned associate UIC (UIC SP, Not Rated) and Kheng Leong (Private) will take 30% and 20% stakes, respectively. 
  • The bid price of SGD1.035b translates into a unit land rate of SGD1,138 psf ppr, based on a maximum GFA of 84,551 sqm. The price paid is significantly lower than SGD1,515 psf that CapitaLand (Rating: BUY; Target Price: SGD4.10) paid for the redevelopment site at Pearl Bank Apartments. 
  • While more restrictive tender conditions could add to the development costs, we reckon the fairly low land rate should more than compensate for these complications.


Will double its development pipeline

  • Based on our estimates, UOL and UIC currently have a combined unsold inventory of about 1,100 units across seven projects. This deal effectively doubles its saleable resource by adding up to 1,125 units. Assuming an ASP of SGD2,200 psf, we estimate a potential GDV of SGD1.9b.


Balance sheet can easily fund this deal

  • UOL has a healthy balance sheet with a low net gearing of just 0.21x. Assuming a LTV of 60%, we estimate only a 0.07ppt increase in leverage to 0.28x. 
  • Furthermore, stronger sales and impending completion of projects under development would improve its cash collections in the year ahead, which leaves capacity for more deals.


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/ 2018-04-27
SGX Stock Analyst Report BUY Maintain BUY 10.400 Same 10.400



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