UOL Group - OCBC Investment 2021-03-02: Rejuvenating For The Future

UOL GROUP LIMITED (SGX:U14)

UOL Group - Rejuvenating For The Future

UOL Group (SGX:U14) reported a 12.5% and 30.4% decline in its FY20 revenue and gross profit to S$1,977.1m and S$727.6m, respectively. This was attributed largely to a slump in revenue from its Hotel operations by 62% and a weaker gross margin.

UOL's FY20 PATMI dipped 97.3% to S$13.1m due largely to fair value losses on its investment properties (S$293.3m) and impairment charges on two of its hotel properties. If we strip out these effects, UOL’s core PATMI would have declined by 17.2% to S$259.8m, but this was 12.5% above our forecast.
A first and final dividend per share of S$0.15 was declared, lower than the S$0.175 per share paid out in FY19.

UOL’s Hotel operations was unsurprisingly the main drag in FY20, with S$74.8m of operating losses, versus an operating profit of S$73.7m in FY19. However, adjusted EBITDA for the segment was positive in FY20. RevPAR for Singapore, Oceania and Others fell 61%, 55% and 60%, respectively, in FY20. Given the rollout of vaccinations globally, UOL is hopeful of a modest return of visitor arrivals to Singapore and the rest of the Asia Pacific region by the later part of 2021.
Committed occupancy for UOL’s Retail and Office portfolio remained high at 94.9% and 92.1-100%, respectively.
For its Property Development segment, UOL sold 794 residential units with an aggregate value of S$1.24b in Singapore in 2020. Given the relatively firm demand for its residential projects, management highlighted that it was looking to replenish its Singapore landbank, but would bear in mind the increase in construction costs and potential property cooling measures.

Notwithstanding the COVID-19 pandemic, UOL was able to maintain a healthy balance with a low net gearing ratio of 29% and average borrowing cost of 1.35%. Given its solid financial position, UOL was able to initiate on two major rejuvenation projects.
- The first entails the development of a new standalone 7-storey building which would be an extension to its Odeon Towers Building and will comprise office and retail space.
- Secondly, UOL has obtained URA’s in-principle approval under the Strategic Development Initiative Scheme to redevelop its Faber House property into a 250-key hotel.
Besides potentially higher GFA to be unlocked from both projects, UOL will also be able to benefit from a decline in development charge rates in the Hotel and Commercial categories over the past year.
After adjustments, our fair value estimate for UOL increases from S$8.48 to S$8.91, still pegged to a 30% discount to our RNAV estimate.
See UOL Group Share Price; UOL Group Target Price; UOL Group Analyst Reports; UOL Group Dividend History; UOL Group Announcements; UOL Group Latest News.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-03-02

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