UOL Group - OCBC Investment 2021-08-13: Residential The Bright Spot

UOL GROUP LIMITED (SGX:U14)

UOL Group - Residential The Bright Spot

UOL Group (SGX:U14)’s 1H21 results missed our expectations. Group revenue jumped 31.4% y-o-y to S$1,193.5m but gross profit increased at a smaller pace of 11.1% to S$381.4m due to margin compression (-5.8 percentage points (ppt) to 32.0%). PATMI reversed from a net loss of S$82.1m in 1H20 to S$91.3m in 1H21.
After adjusting for fair value losses on investment properties, UOL's core PATMI rose 4.4% y-o-y to S$108.2m, and this formed 31.9% of our initial FY21F forecast.

UOL’s property development segment saw brisk sales in Singapore given the buoyant residential market. Its Clavon, Avenue South Residence and MEYER HOUSE projects have been 88%, 75% and 50% sold, respectively.
UOL recently replenished its Singapore residential landbank with the award of a government land sales site at Ang Mo Kio Avenue 1 at S$381.4m, or S$1,118 psf ppr, via a joint venture. It will reopen its showflat for The Watergardens at Canberra project ove r the weekend.
On the other hand, there was weakness seen at UOL’s investment properties and hotels portfolio. Committed occupancy for its retail portfolio fell 4.3 ppt to 90.6% as compared to end-2020, with the drag coming from Marina Square and KINEX. Rental reversions were slightly negative, but the decline has narrowed and management is hoping for a rebound next year. There were also slight dips in committed occupancies for its office properties in Singapore and UK.
Adjusted EBITDA for UOL's hotel operations (excluding JVs and associates) was positive at S$4.1m in 1H21, but represented a decline of 78.5% y-o-y. RevPAR for Singapore, Oceania and Others fell 40%, 1% and 3% y-o-y, respectively, in 1H21.

UOL's management provided updates during the analyst earnings call on its major asset enhancement initiatives and redevelopment projects, such as Singapore Land Tower and Faber House. For the latter, UOL managed to obtain approval from URA for a significant uplift in GFA for its redevelopment.
UOL is also exploring other potential redevelopment opportunities, mostly for older buildings within the Singapore Land Group (SGX:U06) (formerly known as UIC) portfolio. However, one of the main issues is on construction costs, which have increased due to the pandemic.
After adjustments, which include applying an ESG valuation premium, our fair value estimate for UOL increases from S$8.91 to S$9.27.
See

UOL has displayed consistent solid ESG performance.
UOL continues to outperform its peers by demonstrating a comprehensive health and safety management system, which includes a group-wide policy and a zero-incident target for all its development projects. UOL has also adopted energy and water efficiency programmes, and aims to attain “Green Mark Gold” certifications for its new development projects.
For the ‘Corporate Governance’ category, UOL falls into the average scoring range as compared to its global peers.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-08-13

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