UOL Group - DBS Research 2019-05-13: New Era Brings New Opportunities


UOL Group - New Era Brings New Opportunities

  • UOL's 1Q19 net profit (ex-accounting reversal) up 27% y-o-y, led by settlement of residential properties in China.
  • Tre Ver is now 73% sold, from 40% in Feb-19.
  • Marina Centre opens up opportunity to be hotel operator, and has redevelopment potential.
  • Maintain BUY; S$8.53 Target Price.

Maintain BUY; Target Price of S$8.53.

  • We maintain our BUY rating and Target Price of S$8.53 for UOL GROUP LIMITED (SGX:U14). Currently trading at 0.6x P/NAV, we believe UOL could potentially trade closer to its NAV as it unlocks value from its commercial and hospitality assets.

Where We Differ: Gaining access to prime integrated development with redevelopment potential.

  • Following UOL’s tighter grip on UNITED INDUSTRIAL CORP LTD (SGX:U06) (50% stake) and purchase of a minority stake in Marina Centre Holdings (MCH), UOL now has control over a prime integrated development comprising a retail mall and 3 hotels fronting the Marina Bay area.
  • We believe UOL is well positioned to gain from asset enhancement / redevelopment potential riding on the government’s plan to rejuvenate the CBD.

Potential Catalysts:

  • Unlocking value of its commercial and hospitality assets, and recovery in rental rates and hotel RevPAR. 1Q result highlights: Tre Ver is now 73% sold; MCH opens up hotel operator and landbanking opportunity.


  • We maintain our BUY rating on UOL and Target Price of S$8.53, pegged to 35% discount to our RNAV. We have taken into account the higher valuation and stake in MCH.

Key Risks to Our View:

  • Economic slowdown. The downside risk to our projections is if residential sales are slower than our projections or if commercial properties and hotel operations are impacted by slower-than-projected growth in rental/room rates.

WHAT’S NEW - New era brings new opportunities

1Q19 net profit (excluding accounting reversal) up 27% y-o-y, led by settlement of residential properties in China.

  • UOL’s 1Q19 reported earnings fell 5% y-o-y to S$72m, mainly due to the accounting reversal of development property backlog of S$31.9m. Excluding the accounting reversal, net profit was up 27% y-o-y to S$104m from S$82.4m in 1Q18.
  • 1Q19 revenue grew 12% y-o-y, mainly from property development from the settlement of Park Eleven residential properties, higher revenue from property investments (+4% y-o-y) from UIC Building, and maiden contribution from 72 Christie St, Sydney acquired in Dec18. Revenue from hotel operations (-6% y-o-y) was impacted by the closure of Pan Pacific Orchard and lower revenue from the Australian hotels.

Gross margins contracted to 42% from 45% in 4Q18.

  • Gross margins contracted to 42% in 1Q19 vs 45% in 4Q18. On a y-o-y comparison, margins improved 5 ppts from 37% in 1Q18, led by higher property development margins and absence of accelerated depreciation for Pan Pacific Orchard recognised in 1Q18.


Tre Ver is 73% sold to-date from 40% in Feb19; Meyerhouse and Avenue South Residences expected to launch in June/July 2019.

  • Sales progress of units at Tre Ver (launched in July18) shot up to 73% to-date from 40% in Feb19. According to management, sales momentum picked up after CNY and also benefitted from launches of properties nearby. Tre Ver achieved an average selling price of S$1,580psf. Amber 45 (launched in May18) continues to achieve steady sales with 75% units sold to-date vs 70% in Feb19.
  • UOL plans to launch Meyerhouses (56 units) in Jun19 and Avenue South Residences (1,074 units) at end-Jun19 / early Jul19.
  • On Singapore property, management has seen some support in the higher-end market while the mid-market segment appears to be a bit more crowded and pricing strategy is crucial.
  • In China, the handover of Park Eleven Phase 1 began in Dec18. UOL has handed over 103 of 150 units sold in 1Q19. UOL targets to launch Park Eleven Phase 2 with 127 units in 2H19, currently pending sales permit. Phase 2 comprises mainly townhouses and should fetch a much higher price. In the UK, UOL targets to launch One Bishopsgate Plaza (160 units) in 3Q19 despite Brexit.

Singapore hotels impacted by ongoing renovations.

  • RevPAR increased at its hotels in Australia, Vietnam and Malaysia, but fell in China and Myanmar. Singapore RevPAR fell largely due to renovation work at Parkroyal on Kitchener Road.
  • Pan Pacific London (Bishopgate, London) is expected to open by mid-2020 while Pan Pacific Orchard (Singapore) is expected to open in 2021.

Overall office rental reversions flat; retail -1%.

  • Overall office rental reversion was flat, supported by positive rental reversions at CBD offices (mainly under the United Industrial Corp portfolio of assets), offset by drop reversions in selected assets. Overall occupancy stood at 96.5%.
  • Overall retail rental reversion fell 1%. While Velocity@Novena Square has seen positive rental reversions, it was offset by United Industrial Corp’s retail portfolio such as West Mall and Marina Square. Overall occupancy stood at 94.8%.
  • UOL’s two London properties continued to achieve higher rentals; 1Q19 net contribution from these two assets was up 4% y-o-y.

Marina Centre – potential for UOL to be hotel operator and presents a landbanking opportunity.

  • While the redevelopment plan of Marina Square development is still preliminary, management sees two low-hanging fruit:
    1. potential change of operator at Marina Mandarin, which Pan Pacific is in the running for,
    2. potential redevelopment of Marina Square with landbanking opportunity, plot ratio enhancement, and potential uplift of the land tenure.
  • According to the government incentive scheme, a residential component will have to be included in the redevelopment plans. Management sees this as a landbanking opportunity in the medium-term. While management is positive of the opportunity to intensify the land site, management is mindful of potential costs involved including construction costs and development charges.

Maintain BUY; Target Price of S$8.53.

  • We maintain our BUY rating on UOL and Target Price of S$8.53 based on a 35% discount to RNAV.
  • Given its recent actions (gaining control in United Industrial Corp and now MCH), UOL is well positioned to unlock the value of its commercial and hospitality assets.
  • The stock is currently trading at 0.6x FY19F P/NAV, at close to 1 standard deviation below the historical average that it traded at during the last property cycle (FY13-17). See UOL share price.
  • We believe UOL can potentially trade closer to its NAV as it slowly unlocks more value from its commercial and hospitality assets. Our target price implies 0.8x P/NAV.

Rachel TAN DBS Group Research | Derek TAN DBS Research | 2019-05-13
SGX Stock Analyst Report BUY MAINTAIN BUY 8.530 SAME 8.530