UOL Group - CGS-CIMB Research 2018-11-13: Business As Usual


UOL Group - Business As Usual

  • UOL's 3Q/9M18 core net profits are broadly within expectations, at 22%/60% of our FY18 forecasts.
  • Expect 4Q to pick up on more progressive billings.
  • New launches seeing steady buying traction, largely stable recurrent income.
  • Maintain ADD, Target Price unchanged at S$8.45.

3Q18 results highlights

  • UOL reported 3Q18 core net profit of S$92.8m, up 5% y-o-y despite a 3% decline in revenue to S$523.8m, thanks to an improvement in gross profit margins to 45% vs. 31% in 3Q17, absence of one-off items, and lower interest expense.
  • 3Q18 revenue mix was skewed more towards higher-yielding rental income which made up 25% of topline (vs. 15% in 3Q17) while lower-margin property development revenue accounted for 32% of revenue (vs. 54% in 3Q17) on the back of project completions.

New launches continue to see steady buying traction

  • Residential revenue came largely from The Clement Canopy (96% sold) and Amber45 (63.3% taken up) and billings from Principal Garden and Botanique at Bartley. We expect the former two projects and The Tre Ver (231 of 729 units sold to date) to drive profits in the immediate term.
  • UOL group is planning to launch the 56-unit Meyer Rd (Nanak Mansion enbloc) as well as its Silat Avenue sites in 2Q19. Together, these should translate to a launch pipeline of 1,130 units.

Healthy recurring income sources

  • Rental income was higher y-o-y due to consolidation of United Industrial Corp (UIC)’s investment properties and 120 Holborn Island in UK. KINEX Shopping Mall (formerly One KM) is still undergoing asset enhancements and tenant remixing activities. The property is about 88.5% occupied and rental reversions remain flat at present.
  • UOL's other assets, such as Velocity and United Square, continue to enjoy positive rental reversion. An estimated 26% of its office portfolio NLA is due to be renewed in 2019F and we anticipate positive impact when the leases are re-contracted, in tandem with the improved office leasing market. Meanwhile, its hotel portfolio delivered a mixed performance.

Strong balance sheet

  • Looking ahead, with a strong balance sheet and net debt to equity ratio of 8.88x (at end- Sep), UOL is well placed to continue building on its recurring income sources.
  • UOL group announced that it is in preliminary confidential discussions with a party on the possible acquisition of an office building in Sydney. The talks are ongoing and no definitive terms or formal documentation have been agreed upon. Should the deal materialise, the transaction would be in line with UOL’s stated strategy to grow its recurrent income base.

Maintain ADD

  • We leave our FY88-88 EPS estimates unchanged post results. Our RNAV is maintained at S$88.88. Our Target Price of S$8.88 is pegged to a 88% discount to RNAV. See the breakdown of RNAV in the PDF report attached. 
  • Share price catalyst could materialise when more capital is deployed into new, accretive investments while risks include slower-than-expected take up for its new launches.

LOCK Mun Yee CGS-CIMB Research | 2018-11-13
SGX Stock Analyst Report ADD MAINTAIN ADD 8.450 SAME 8.450