UOL Group - Business as usual
- Deploying capital into higher yielding recurring income properties.
- Residential projects selling steadily, slight risk from UIC’s residential portfolio.
- Maintain Add with an unchanged target price of S$7.96.
Strong capital deployment
- UOL has been actively deploying capital in 2H2015-16 with an attributable S$710m worth of asset acquisitions. These properties are located in Singapore (45%) and US (55%) and include the joint purchase of Holborn Island in London and the Raintree Garden enbloc site in Singapore. These could increase its total asset base to S$12bn or a 3.3% uplift.
- Its balance sheet remains healthy, with an estimated gearing of 0.34x post acquisition.
Rental income underpins stable earnings base
- Property investment income (including UIC’s associate contributions) made up an estimated 58% of FY15 group EBIT. This is expected to be bolstered by new contributions from Holborn Island, by 2-3% on an annual basis.
- Meanwhile, its Singapore commercial and retail properties are enjoying high occupancy, in excess of 95% and positive rental reversions of 2-7%. This provides a strong and stable income base.
Robust residential take-up, selectively building up landbank
- Most of UOL’s residential projects are selling well, ranging from a 43% sales rate for Principal Garden to 96% for Botanique at Bartley.
- UOL plans to launch the 505-unit The Clement Canopy at Clementi Ave 1 in 1Q17.
- The purchase of the Raintree Garden land parcel should further extend development earnings visibility.
- In terms of ABSD penalty, UOL could be impacted by associate UIC’s projects such as Mon Jervois, Pollen & Bleu and Alex Residences, if they are not fully sold in 2017.
Incrementally raising stakes in UIC
- UOL/Wee family has been incrementally raising their total deemed stake in UIC to 49.63%, closer to the 50% takeover trigger mark. We reckon the potential for a corporate exercise exists.
- UIC is one of the largest commercial landlords in Singapore, with a portfolio of 2msf of NLA as well as a majority share in c.2,000 hotel rooms through Marina Centre Holdings.
- Maintain Add with a target price of S$7.96, based on a 20% discount to RNAV.
- We continue to like UOL for its stable income profile and visible residential earnings.
- There is also a potential for corporate action as the UOL/Wee family stake in UIC has moved closer to 49.63%.
- Downside risks may come from more revaluation adjustments from a declining office rental market.