UOL Group - OCBC Investment 2020-11-12: Potential Beneficiary Of Rotation Play Into Laggards


UOL Group - Potential Beneficiary Of Rotation Play Into Laggards

  • Some positives but operating environment remains challenging.
  • UOL's healthy balance sheet allows headroom to drive growth.
  • Positive vaccine news and cheap valuations should help to support sentiment.

Potential beneficiary of rotation play

  • UOL Group (SGX:U14)’s 3Q20 business update reflects ongoing challenges surrounding its retail and hospitality business. However, positive developments on the vaccine front, continued resiliency in its residential segment and cheap valuations should help to support sentiment and make it a potential beneficiary of a rotation play into laggards and value stocks, in our view.

Resilient residential and office segments, but retail and hospitality businesses continue to face headwinds

  • UOL highlighted that it booked 112 residential units in Singapore during 3Q20, which is almost double the 58 units booked in 2Q20. There was also a slight increase in number of units booked for its Park Eleven (Phase 1and2) project in China.
  • Looking ahead, UOL intends to launch its Clavon residential project in Singapore in Dec this year. Given the good location and reasonable land acquisition cost, we expect sales and margins to come in respectably.
  • UOL's office portfolio remained largely stable, with committed occupancy in Singapore increasing 0.4 ppt q-o-q to 94.9%, Australia remaining fully occupied and UK seeing a slight decline of 1.1 ppt to 93.3%.
  • For retail, committed occupancy fell 0.9 ppt q-o-q to 93.5%, while the decline in shopper traffic widened from 41.7% in 1H20 to 43.1% in 9M20, implying a weaker 3Q20.
  • UOL's hotels business failed to see a sequential recovery, as RevPAR in Singapore dipped 58% in 9M20, versus a decline of 55% in 1H20. This was because the improvement in occupancy was more than offset by a decline in average room rates. RevPAR fell 52% and 59% in Oceania and Others in 9M20, as compared to -42% and -59% in 1H20, respectively.

UOL's balance sheet remains healthy

  • See UOL Group Share PriceUOL Group Target PriceUOL Group Analyst ReportsUOL Group Dividend HistoryUOL Group AnnouncementsUOL Group Latest News
  • Despite the soft operating metrics, UOL continued to maintain a strong balance sheet, with a low net gearing ratio of 32%, unchanged from end-1H20. Average borrowing cost came down by 21 bps q-o-q to 1.45%. UOL also has S$2.8b of unutilised credit facilities, which is sufficient to cover the S$2.8b of debt due within two years.
  • Valuations are also cheap, with UOL trading at a blended forward P/B of 0.58x (based on Refinitiv consensus), or almost one standard deviation below its 10-year average of 0.7x. We retain our fair value of S$8.48, pegged to a 30% discount to our RNAV forecast.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-11-12
SGX Stock Analyst Report BUY MAINTAIN BUY 8.48 DOWN 9.600