OUE Limited - OCBC Investment 2019-11-18: Good Performance Across Business Segments


OUE Limited - Good Performance Across Business Segments

  • One-off non-cash gain of S$90.9m.
  • Inclusion of contribution from OUE Hospitality Trust.
  • Lower Fair Value of $1.69.

3QFY19 PATMI was up S$122m to S$124.1m

  • OUE LIMITED (SGX:LJ3)’s 3QFY19 revenue grew 54.1% y-o-y to S$282.5m, driven by higher contributions from all business segments. See OUE Announcements.
  • Following the merger with OUE Hospitality Trust, OUE’s Investment Properties’ revenue rose 7% y-o-y due to inclusion of revenue contribution from Mandarin Gallery. Development Properties’ revenue increased by 207% y-o-y due to the sale of the property development at 26A Nassim Road, partially offset by lower revenue from the sale of OUE Twin Peaks units.
  • For OUE’s Hospitality segment, 3QFY19 revenue saw a growth of 1.1% y-o-y while the Healthcare segment grew 3.1% y-o-y on the back of higher contribution from OUE Lippo Healthcare (SGX:5WA). As such, PATMI was up S$122m from S$2.1m in 3QFY18 to S$124.1m this quarter, mainly attributable to higher revenue and one-off non-cash gain recognized as a result of the merger.
  • Subsequent to the merger with OUE Hospitality Trust, the right-of-use assets, lease liabilities and other liabilities related to Mandarin Orchard Crowne Plaza Changi Airport that were previous recognized when OUE Hospitality Trust was an associate of OUE are derecognised, resulting in a one-off non-cash gain in 3QFY19.

Proposed disposal of OUE Downtown serviced apartments

  • OUE entered into a sale and purchase agreement to sell Oakwood Premier OUE Singapore, its luxury serviced residences and hotel business at OUE Downtown, together with the plant and equipment related services apartment business for an aggregate consideration of S$289m to DHI Holdings on 18 Sep 2019.
  • Management believes that the divestment is a timely initiative which enables the group to fund business plans with higher-growth opportunities that will enhance shareholder value.
  • Looking ahead, management expects the operating environment to remain challenging with rental growth in Shanghai and Singapore CDB areas likely to come under pressure amid economic uncertainties. However, the decline in office vacancy rate with continued positive net absorption in Los Angeles and growing tourism demand in Singapore coupled with benign hotel supply in the next 3 years could provide a buffer and support earnings growth.
  • After adjustments, our fair value estimate slips from S$2.32 to S$1.69. See OUE Share Price; OUE Target Price.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2019-11-18
SGX Stock Analyst Report BUY MAINTAIN BUY 1.69 DOWN 2.320