UOL Group - CGS-CIMB Research 2019-08-08: Business As Usual


UOL Group - Business As Usual

  • UOL GROUP (SGX:U14)'s 2Q/1H19 EPS in line with our expectations, at 25%/45% of our FY19 forecasts.
  • Take up rates for ongoing projects improved; stable rental income.
  • Maintain ADD with a slightly higher Target Price of S$8.48.

UOL's 2Q19 results highlights

  • UOL Group reported a 20% y-o-y decline in 2Q19 revenue to S$512.3m on weaker residential development and hotel revenue, albeit partly offset by higher rental and dividend income. However, net profit surged 48% y-o-y to S$195.4m, thanks to revaluation gain from investment properties of S$181.9m. Excluding this, bottomline would have dipped 1% to S$91.7m.
  • UOL Group's 2Q/1H EPS made up 25%/45% of our full-year forecasts, in line with expectations.

Ongoing projects continue to enjoy higher sell-through rate

  • 2Q residential revenue declined 48% y-o-y to S$145.3m with the completion of ongoing fully-sold projects. However, new sales continue to be robust with The Tre Ver 81% taken up to date and the Amber 45, 75% sold. The 1,074-unit Avenue South Residence is slated to be marketed soon.
  • UOL Group recently won a government land sale site at Clementi Ave 1, jointly with its subsidiary United Industrial Corp (SGX:U06), for S$491.3m or S$788psf ppr. The site can house 640 apartments. This has enabled the group to replenish its land bank.

Positive rental reversion and new acquisition boost rental income

  • Rental income from commercial and retail properties rose 3% in 2Q, with positive rental reversion from both office and retail assets as well as the inclusion of income from 72 Christie St office property in Australia.
  • Singapore properties continue to be highly occupied at an average 97% occupancy rate. The repositioning of KINEX is ongoing.
  • Going forward, the group intends to improve returns from its office buildings through refurbishments or asset enhancement activities (AEIs). We believe it can achieve positive medium-term returns from these exercises.

Potential to enhance value of Marina Square mixed development

  • Post United Industrial Corp’s purchase of the remaining stake it does not own in Marina Centre Holdings, the group continues to evaluate development enhancement options for the Marina Square mixed retail/hotel site, in tandem with the government’s development incentive scheme. This would enable it to enhance the value of the land parcel in the longer run.
  • In the near term, it looks to rebrand Marina Mandarin Hotel under the ParkRoyal Collection from 2020.
  • End-2Q19 gearing was 0.3x, providing the group with deep funding capacity.

Maintain ADD

  • We raise our FY20-21F core EPS by 0.8-5.1% to factor in contributions from the recently won Clementi Ave1 land parcel. Accordingly, our Target Price rises slightly to S$8.48, still pegged to 30% discount to RNAV.
  • We continue to like UOL Group for its diversified business model with a high proportion of recurring income.
  • Re-rating catalyst could come from more definitive plans for the Marina Square mixed site redevelopment.
  • Downside risks include slower-than-expected pace of residential sales.

LOCK Mun Yee CGS-CIMB Research | 2019-08-08
SGX Stock Analyst Report ADD MAINTAIN ADD 8.48 UP 8.450