UOL Group - OCBC Investment 2019-05-13: Class Shall Prevail

UOL GROUP LIMITED (SGX:U14)

UOL Group - Class Shall Prevail

UOL GROUP LIMITED (SGX:U14) reported its 1Q19 results which met our expectations. Group revenue rose 11.7% to S$741.2m, but PATMI fell 4.9% y-o-y to S$72.4m.
If we strip out an accounting reversal of S$31.9m due to the amortisation of property development backdrop in relation to the consolidation of UNITED INDUSTRIAL CORP LTD (SGX:U06) (1Q18: S$6.3m), we estimate that core PATMI would have increased by 26.6% y-o-y to S$104.3m, or 28.4% of our FY19 forecast.

As at 31 Mar 2019, UOL’s Amber45 and The Tre Ver projects were 69.8% and 34.6% sold, respectively. However, sales momentum has been strong post CNY, especially for the latter.
Currently, sell-through rates have reached 75% for Amber45 and 73% for The Tre Ver. We believe this can be attributed to The Tre Ver’s good specifications and competitive pricing (ASP of S$1,580 psf versus Park Colonial: S$1,750 psf and Woodleigh Residences: re-launched units starting from S$1,733 psf), which is made possible given UOL’s prudent land cost.
Agent’s commissions have also been increased from > 1% at project launch to sub-3%, but this is common practice in Singapore.

United Industrial Corp, a 50.1%-owned subsidiary of UOL, recently acquired a 24.3% stake in Marina Centre Holdings (MCH) for S$485.3m, such that United Industrial Corp and UOL holds 77.3% and 22.7% of MCH, respectively, implying full control. MCH owns Marina Square Shopping Mall and the Marina Square hotels (Pan Pacific Singapore, Marina Mandarin Singapore and the Mandarin Oriental, Singapore).
At the same time, MCH had also raised its stake in Aquamarina Hotel Pte Ltd (AHPL) from 50% to 75% for S$190m (UOL owns the remaining 25% stake). AHPL in turn owns the Marina Mandarin Singapore. This development provides UOL with the increased flexibility to value add to this portfolio of assets, including taking advantage of the Strategic Development Incentive from the 2019 Draft Master Plan.
While a better alignment of interests and potential intensification of plot ratio are positives, management highlighted that development charges/premiums are at high levels, and a detailed feasibility study needs to be carried out first.
After adjustments, our RNAV-derived fair value increases from S$8.45 to S$8.50. Maintain BUY.

Wong Teck Ching Andy CFA OCBC Investment Research | https://www.iocbc.com/ 2019-05-13

SGX Stock Analyst Report BUY MAINTAIN BUY 8.50 UP 8.450