UOL Group - CGS-CIMB Research 2020-02-28: Looking For Value Creation Opportunities

UOL GROUP LIMITED (SGX:U14)

UOL Group - Looking For Value Creation Opportunities

UOL's 4Q/FY19 core EPS below our and market expectations.
One residential launch in 3Q20F, exploring more commercial property asset enhancement opportunities.
Reiterate ADD with an unchanged Target Price of S$8.73.

UOL Group (SGX:U14)'s 4Q19/FY19 revenue declined 3.2%/5% y-o-y to S$553.2m/S$2283.3m, dragged by lower residential development contributions and a slight dip in hotel revenue. However, FY19 PATMI rose 14% y-o-y due to higher fair value and divestment gains, partly offset by a one-off fee paid for termination of the hotel management agreement of Marina Mandarin Singapore and amortisation of development property backlog.
Core net profit of S$313.7m was 6% lower y-o-y. 4Q/FY19 core EPS made up 19%/87% of our FY19F forecast, below our and market expectations.
UOL proposed a final DPS of 17.5 Scts.

FY19 residential revenue declined 14% y-o-y to S$847.1m with revenue recognition from Avenue South Residences (ASR), The Tre Ver, Amber 45 and Park Eleven in Shanghai. The group locked in S$1.34bn worth of residential sales in Singapore in FY19, which will be progressively recognised from FY19 onwards.
UOL’s projects continue to enjoy higher sell-through rates. ASR is 41% taken up to-date, while sales at Amber 45 and The Tre Ver continued to improve to 89%/82%, respectively. UOL also soft-launched The Sky Residences in UK, generating 18% sales response. It plans to launch its remaining Clementi Avenue 1 site in 3Q20F.

Rental income from commercial and retail properties rose 2% y-o-y in FY19, with slight positive rental reversion.
In terms of the impact from COVID-19, management indicated that shopper footfall at the majority of its malls have recovered slightly from recent lows.
For FY20F, the group intends to explore asset enhancement/redevelopment opportunities, namely at Odeon towers (together with KH KEA Bldg) and is exploring opportunities for Faber House and other potential buildings within its portfolio that can benefit from plot ratio intensification or through redevelopment incentives. We have not factored in any accretion from these activities into our current RNAV. However, hotel revenue dipped 4% in FY19 and continues to be adversely affected by the current decline in tourist arrivals.
UOL intends to accelerate its refurbishment programmes at Parkroyal Collection Marina Bay during this downtime.

We lower our FY20-21F earnings estimates by 14-15% to bake in slower hotel operations and moderated rental reversions. Our Target Price of S$8.73, pegged to a 30% discount to RNAV, remains unchanged.
We continue to like UOL for its diversified business model with a high proportion of recurring income.
See UOL Group Share Price; UOL Group Target Price; UOL Group Analyst Reports; UOL Group Dividend History; UOL Group Announcements; UOL Group Latest News.
Re-rating catalyst could come from more details on asset enhancements for its commercial properties.
Downside risks include slower-than-expected pace of residential sales.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-02-28

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