UOL GROUP LIMITED (SGX:U14)
UOL Group - Navigating Headwinds Ahead
- UOL's FY21 core PATMI fell 10% to S$233.6m.
- Singapore residential sales of S$1.5b in 2021 but likely to slow in FY22.
- Hospitality operations likely to pick up more meaningfully in 2H22.
UOL's FY21 results fell short of our expectations
- UOL Group (SGX:U14) reported a 32% increase in its FY21 revenue to S$2,606.8m while gross profit rose at a smaller magnitude of 11% to S$807.6m and this translates to a lower gross profit margin of 31.0% (-5.8 percentage points (ppt)). PATMI surged from S$13.1m in FY20 to S$307.4m in FY21 due to fair value gains on investment properties versus impairments in FY20. Excluding these, UOL’s core PATMI declined by 10% to S$233.6m, below our expectations (forecast of S$285.0m).
- UOL's management declared a first and final dividend of 15 cents per share (unchanged y-o-y), which translates to a dividend yield of 2.2% (based on share price of S$6.90).
Residential sales to slow in FY22, while hospitality operations could pick up more meaningfully from 2H22
- UOL Group sold 799 residential units in Singapore amounting to S$1.53b in value in FY21, versus S$1.17b in FY20. However, revenue recognition was hampered by delays in the construction progress due to the pandemic.
- Looking ahead, we expect UOL’s residential sales momentum to soften in FY22 given that it does not have much unsold inventory, while there could only be one new launch (Ang Mo Kio Avenue 1 site) for the year.
- The launch of the Watten Estate en-bloc site may be pushed back to 2023 as UOL is exploring options to tap on the Built Environment Transformation GFA Incentive Scheme, which would allow an additional 3% GFA beyond the Master Plan Gross Plot Ratio if approved.
- Management acknowledged that the Russia and Ukraine situation could lead to higher raw material costs, but it has already locked in some construction costs for its earlier projects.
- For UOL’s office and retail portfolios, rental reversions came in at -2% to -3% in FY21, and could come in flat to slightly negative for the former due to AEI disruptions, and to remain slightly negative for retail in FY22. Hospitality operations are expected to see a more meaningful recovery in 2H22 when borders reopen further, although there would be increased competition in the near-term as more hotels drop off from the isolation business from the government.
Healthy balance sheet to support growth opportunities
- In terms of financial position, UOL’s net gearing ratio improved from 0.29x (as at 30 Jun 2021) to 0.26x, which is healthy relative to its peers. It has unutilised credit facilities of S$2.6b, which would help to support its growth opportunities ahead, such as its redevelopment projects and landbank replenishment.
- After adjustments, which include widening our RNAV discount from 30% to 40% (before applying an ESG valuation premium) to account for a more challenging residential operating environment in Singapore given the property cooling measures announced in Dec 2021, our fair value estimate for UOL declines from S$9.27 to S$8.39.
- See
OCBC Research Team
OCBC Investment Research
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https://www.iocbc.com/
2022-03-03
SGX Stock
Analyst Report
8.39
DOWN
9.270
