UOL Group

Price targets:

$9.50 BUY (DBS Group Research)

$8.73 ADD (CGS-CIMB Research)

$10.10 OUTPERFORM (Macquarie Research)

$8.40 EQUAL (Credit Suisse Research)

$9.40 OUTPERFORM (Morgan Stanley Research)

$8.55 OVERWEIGHT (JPMorgan Research)

Already reeling from the impact of property cooling measures in Singapore, UOL Group’s commercial, retail and hospitality assets face rising challenges exacerbated by the Covid-19 outbreak.

Although the group saw its earnings fall below consensus estimates for FY2019 ended December, analysts remain optimistic that the property giant can weather the storms.

On the surface, UOL had a stellar FY2019, with full-year earnings jumping 14% y-o-y to $478.8 million. However, a closer scrutiny of its bottom-line reveals a different story.

“If we strip out fair value gains on investment properties and other gains/losses, core PATMI came in at $313.7 million. This represented a decline of 5.8% and was 12.7% below our forecast,” says OCBC Investment Research in a March 2 report.

FY2019 revenue dipped 5% to $2.28 million, led by a 14% drop in revenue from property development to $847.1 million. The decline was largely attributable to lower progressive recognition of revenue from three development projects — Principal Garden, The Clement Canopy and Botanique at Bartley — which have obtained their temporary occupation permits (TOP).

“Although UOL Group’s Singapore residential portfolio has been impacted by the property cooling measures, we believe its high quality projects and prudent land acquisition costs will allow it to weather the uncertainties,” OCBC says.

“UOL also has a diversified investment properties portfolio with a strong presence in the commercial and hotel industries, thus allowing the group to generate strong recurring income streams,” OCBC adds.

CGS-CIMB Research analyst Lock Mun Yee notes that UOL has locked in $1.34 billion worth of residential sales in Singapore in FY2019, which will be progressively recognised going forward.

“We continue to like UOL for its diversified business model with a high proportion of recurring income,” says Lock.

Over at DBS Group Research, lead analyst Rachel Tan agrees that UOL is well positioned to gain from asset enhancement initiatives (AEI) and redevelopment potential.

“UOL has been quick to undertake upgrades at the newly rebranded ParkRoyal Collection Marina Bay (previously Marina Mandarin) to tap on the government’s rejuvenation plans. We await confirmation of the redevelopment plans for Marina Square which could include a residential component,” she says in a March 2 report.

At the same time, she notes that UOL’s balance sheet remains strong.

“Debt-to-equity ratio stood at 0.3x as at December 2019. This leaves UOL with sufficient headroom to acquire projects/new sites when opportunities arise,” Tan adds. — By Stanislaus Jude Chan

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