UOL Group - DBS Research 2019-12-31: Hidden Gold Within Its Portfolio


UOL Group - Hidden Gold Within Its Portfolio

9M19 results on track

  • UOL GROUP (SGX:U14)’s 9M19 earnings increased 19% y-o-y to S$348m, mainly due to higher fair value gains (recorded in 2Q19) but offset by the accounting reversal of development property backlog of S$76.4m recorded in 1H19 vs S$15.3m in 1H18. All development property backlog previously recognised have been fully amortised with the completion of Park Eleven, Shanghai and The Clement Canopy at end- 1Q19.
  • Excluding fair value gains, net profit fell 4% y-o-y to S$244mn.
  • 9M19 revenue fell 5% y-o-y, mainly from lower contributions from property development (-15% y-o-y) following the completion of development projects and hotel operations (-4% y-o-y) were impacted by lower occupancies and room rates at Marina Mandarin Singapore and PARKROYAL Darling Harbour, Sydney and ongoing refurbishments at PARKROYAL on Kitchener Road. These were offset by higher revenue from property investments (+3% y-o-y) and higher dividend income (+14% y-o-y)
  • 3Q19 net profit fell 7% y-o-y to S$80m in line with lower revenue (-10% y-o-y) mainly from lower contributions from property development (-34% y-o-y), higher marketing and distribution expenses (+11% y-o-y) for new and ongoing launches such as Avenue South Residences, Amber45 and The Tre Ver, and higher finance expenses (+14% y-o-y).
  • Gross margins improved to 50% (vs 49% in 2Q19 vs 45% in 4Q18) due to lower proportions from property development with lower margins and higher dividend income.


Residential: Strong sell-through rates at all 3 ongoing Singapore projects (40% to 86% sold).

  • UOL’s Avenue South Residence recorded the top-selling project in September 2019 with more than 417 units sold (~39% sold) to-date.
  • UOL’s ongoing projects (Amber45 and The Tre Ver) launched in May 2018 / July 2018 has achieved 80% and 86% sales take-up to-date respectively.
  • YTD, Meyer House has opened for private previews since May 2019 and has sold 5 units to-date (9% take-up).
  • Targets to launch its new landbank Clementi Avenue 1 in 3Q2020.
  • In China, UOL launched phase 2 in October 2019 with approved sales price of RMB85.4k psqm vs RMB77k psqm for phase 1. UOL achieved 51 bookings out of 183 units (28%)
  • In UK, The Sky Residences at One Bishopsgate Plaza held soft launches in HK and China since October 2019 which saw healthy interest (received more than 20 expression of interest).

Hotel: Reviewing more potential divestments of non-core hotels.

  • RevPAR in Singapore and Southeast Asia were up by 1% and 4% respectively.
  • Australia and China remains challenging with RevPAR down 1% and 6% respectively.
  • Following the divestment of Pan Pacific Suzhou, UOL continues to review its portfolio of assets and may consider divestments of non-core hotels / hotels with weaker performance.
  • Marina Mandarin Singapore will be rebranded to PARKROYAL Collection Marina Bay from 1 January 2020. Targeting AEI post-Formula 1 (F1) and aerospace events, possibly in 2H2020.
  • Key hotel openings –
    • Pan Pacific London (Bishopgate, London) is expected to open by mid-2020,
    • PARKROYAL Dalian is expected to open in 4Q2020,
    • Pan Pacific Orchard (Singapore) is expected to open in 2021.

Commercial: Healthy operational metrics for office and retail; expect limited office rental growth on weakening economic outlook.

  • Overall office portfolio achieved mid-single digit positive rental reversions. However, UOL’s management has turned cautious on weakening economic outlook which could lead to limited rental growth.
  • Retail portfolio showed healthy operational metrics;
    • occupancy remains healthy at 95%,
    • shopper traffic increased 1.3% mainly from United Square and Velocity@Novena and,
    • positive rental reversions.
  • KINEX remains challenging with ongoing mall repositioning and trade re-mixing.
  • While UOL’s management saw some “fruits” from ongoing improvements at the Marina Square mall, it acknowledged that there is more work to be done to position it as a destination mall.

Marina Square redevelopment: In talks with the government.


  • We maintain our BUY rating on UOL and Target Price of S$9.50, pegged to 28% discount to our RNAV. See attached report for breakdown of RNAV. We have factored in the higher valuation and its stake in MCH.

Rachel TAN DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2019-12-31
SGX Stock Analyst Report BUY MAINTAIN BUY 9.50 UP 8.530