UOL Group - CGS-CIMB Research 2021-08-12: Residential To Drive 2H Outlook

UOL GROUP LIMITED (SGX:U14)

UOL Group - Residential To Drive 2H Outlook

UOL’s 1H21 earnings per share of S$0.1082 was broadly in line, at 35.4% of our FY21F forecast.
We expect a better 2H on higher residential recognition and new launches.
Reiterate ADD rating with an unchanged target price of S$8.00.

UOL Group (SGX:U14) reported a 31% rise in 1H21 revenue to S$1.19bn. PATMI surged 211% y-o-y to S$91.3m, on better operating performance, lower interest expense and smaller revaluation deficit, partly offset by lower government grant income. Stripping out the one-offs, net profit would have improved 4% y-o-y.
UOL's balance sheet remains healthy, with net debt to equity of 0.29x, and gross cash and unutilised credit facilities of ~S$4bn at end-1H21.

Property development revenue grew 81% y-o-y to S$687.5m in 1H21 with recognition from Clavon (84.4% sold), Avenue South Residence (70.4% sold) and The Tre Ver (100% sold). UOL plans to roll out its 448-unit Watergardens at Canberra this weekend, and we anticipate this project to be well-received.
In addition, it is scheduled to hand over units at Park Eleven in China and residential units at One Bishopgate Plaza towards 4Q. This will likely underpin the group’s residential earnings visibility in 2H.

UOL's rental income rose 5% y-o-y in 1H21, mainly due to lower rental rebates to tenants. Retail committed occupancy dipped to 90.6% at end-2Q while shopper traffic slid 6.7% y-o-y over the same period. Meanwhile, office occupancy was at 93.7%/90.9% in Singapore/UK while its Australia office property remained 100% leased. The group has a remaining 11% of office NLA and 14% of retail NLA to be renewed in 2H21F.
UOL saw slight negative rental reversion for its office and retail portfolio in 1H and we anticipate this trend to continue in 2H.
In terms of creating value within its portfolio, UOL has obtained approval from the authorities to expand Odeon Towers by constructing a new standalone seven-storey office building with retail and F&B facilities. Construction work is targeted to commence in 4Q21 and be completed over a two-year period.

Hotel revenue declined 8% y-o-y in 1H21. Based on its results breakdown, Singapore and other ex-Australia hotels reported losses on an adjusted EBIT (excluding unallocated costs) level, partly offset by improved contributions from its Australia hotels. Hotel portfolio occupancy was in the range of 33-77% while RevPAR across its geographies, with the exception of Singapore, showed a slight improvement y-o-y.
UOL indicated that a selected number of its hotels would continue to support the government as dedicated quarantine facilities and it would focus on staycations and weddings in domestic markets. A new hotel, the Pan Pacific London, is slated to open in Sep 21.

We leave our FY21-23F earnings per share forecast for UOL unchanged and maintain our RNAV at S$13.34. Target price remains at S$8.00, based on an unchanged 40% discount to RNAV. Our current estimates have not factored in value creation from its asset enhancement activities.
See
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 2021-08-12

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