UOL Group - CGS-CIMB Research 2021-02-27: Asset Enhancement Opportunities

UOL GROUP LIMITED (SGX:U14)

UOL Group - Asset Enhancement Opportunities

UOL's 2H20/FY20 core earnings per share of S$0.185/S$0.308 was in line with our FY20 forecast.
UOL continued to enjoy active residential sales in FY20, and is creating value through enhancing its commercial and hospitality assets.
Reiterate ADD on UOL with a higher RNAV-based target price of S$7.91.

UOL Group (SGX:U14) reported FY20 PATMI of S$13.1m, -97% y-o-y. Excluding fair value losses on investment properties and other impairments, PATMI would have been S$259.8m, -17% y-o-y. This was achieved on the back of a 13% y-o-y decline in revenue to S$1.977bn.
UOL's balance sheet remains healthy, with net debt to equity of 0.29x, and gross cash and unutilised credit facilities of ~S$3.8bn as at end-FY20.

Property development revenue grew 11% y-o-y to S$943.1m in FY20 with recognition from Avenue South Residence (58% sold) and The Tre Ver (100% sold). Amber45 is 97.8% taken up while MEYER HOUSE is 18% sold to date. The successful launch of Clavon at Clementi Ave 1 in 4Q20 also garnered a 73.9% take-up rate to date.
UOL plans to roll out its 448-unit Canberra Drive project in 2Q21. We expect this to underpin the group’s residential earnings visibility.

UOL's investment property revenue declined 9% y-o-y in FY20, impacted by rental rebates of S$20.8m to tenants and lower revenue from serviced suites. Retail committed occupancy remained relatively stable at 94.9%. Shopper patronage in FY20 was about 42% lower y-o-y. Office take-up was at 94.1%/93.3% in Singapore/UK while its Australia office property remained fully occupied.
UOL has 21% of office NLA and 30% of retail NLA to be renewed in FY21F. Rental reversion outlook is expected to remain subdued.
In terms of creating value within its portfolio, UOL has obtained in-principle approval from the authorities to expand Odeon Towers by constructing a new standalone seven-storey office building with retail and F&B facilities. According to management, construction work is targeted to commence in 4Q21 and be completed over a two-year period.

UOL's hotel revenue declined 62% y-o-y in FY20 due to lockdowns and travel restrictions. Hotel portfolio occupancy was in the range of 32-67% while revenue per available room (RevPar) across its geographies declined 55-61% y-o-y in FY20. During this down period, UOL continues to upgrade its hotels. In addition, the group had obtained in-principle approval from the authorities to redevelop Faber House into a 250-key hotel. Construction works are scheduled to commence in 1H22.

We tweak up our FY21-22F earnings per share forecast of UOL by 0.2-0.4% post results. However, our RNAV/Target price is raised to S$13.18/S$7.91, as we peg in a higher target price for UOB. Our current estimates have not factored in value creation from its asset enhancement activities.
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 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 operations.
Downside risk: slower-than-expected pace of residential sales.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-02-27

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