UOL Group - CGS-CIMB Research 2020-08-13: Challenging Operating Conditions

UOL GROUP LIMITED (SGX:U14)

UOL Group - Challenging Operating Conditions

UOL Group's 1H20 EPS was -9.7 Scts, impacted by revaluation deficit and lower operating performance.
Planned roll out of Clavon in 4Q20 extends residential earnings visibility.
Reiterate ADD with a higher Target Price of S$7.29, based on a 40% discount to RNAV.

UOL Group (SGX:U14) reported 1H20 after-tax and minorities loss of S$82.1, due mainly to S$263.8m fair value loss on investment properties. Excluding this, core PATMI would have been S$103.6m, down 37% y-o-y. 1H20 revenue declined 28% y-o-y, due mainly to lower hotel and property development revenue, partly offset by higher technology and management services revenue.
UOL Group's balance sheet remains healthy, with net debt to equity of 0.32x, and gross cash and unutilised credit facilities of c.S$3.9bn as at end-1H20.

Property development revenue declined 29% y-o-y in 1H20 to S$379.7m with recognition from Avenue South Residence and The Tre Ver. Avenue South Residence is currently about 50% taken up while The Tre Ver is 97% sold to date. Meanwhile, ongoing developments such as Amber 45 has seen a slight uptick in sales rate to c.88%.
UOL Group plans to launch Clavon at Clementi Ave 1 in 4Q20. Its recently won 448-unit residential plot at Canberra Drive is slated to be marketed in 2021F. We expect this to underpin the group’s residential earnings visibility.

While investment property revenue declined 14% y-o-y in 1H20, impacted by rental rebates to tenants, retail committed occupancy remained relatively stable at 94-95%. Shopper patronage in 1H20 was about 42% lower than in 1H19, although traffic was recovering steadily in Jun 2020.
Office take up was at 94-95% in Singapore and UK and 100% in Australia. UOL Group has a remaining 8% of office NLA and 16% of retail NLA to be renewed in the remainder of FY20F.

Hotel revenue declined 57% y-o-y in 1H20 due to lockdowns and travel restrictions. Hotel portfolio occupancy ranged 29-61% while revenue per available room (RevPar) across its geographies declined 42-59% y-o-y in 1H20. In addition, the closure of Parkroyal Collection Marina Bay and Parkroyal Kuala Lumpur for major refurbishments and the divestment of pan Pacific Suzhou also impacted bottomline.
While recovery remains uncertain in the near term, management indicated that domestic travel in Australia and China as well as the staycation business in Singapore may help with near-term prospects.

We cut our FY20F EPS by 30.7% while leaving our FY21-22F EPS relatively unchanged. However, our RNAV/Target Price for UOL Group is raised to S$12.15/S$7.29, as we peg in a higher Target Price for UOB.
See UOL Group Share Price; UOL Group Target Price; UOL Group Analyst Reports; UOL Group Dividend History; UOL Group Announcements; UOL Group Latest News.
We continue to like UOL Group for its diversified business model with a high proportion of recurring income. Re-rating catalyst could come from a faster-than-projected recovery of its hotel operation.
Downside risks: slower-than-expected pace of residential sales.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-08-13

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