SINGAPORE (May 15): OCBC Investment Research is keeping its “buy” recommendation on OUE, despite the property developer reporting a 91% plunge in earnings for the 1Q ended March.

OUE saw an $8.1 million non-cash marked-to-market fair value loss on the investment in a mutual fund drag 1Q18 earnings down to $1.0 million, from $11.1 million a year ago.

1Q18 revenue fell 26% to $145.6 million, mainly due to an absence of contribution from the group’s Development Property division following the sale of OUE Twin Peaks in October last year.

However, the brokerage believes OUE is in a favourable position to be lifted amid tailwinds across various sectors.

“On the hospitality front, the group’s assets should benefit from the return of large biennial events in Singapore, as we generally expect industry-wide RevPAR growth to accelerate further in the coming quarters,” says lead analyst Joseph Ng in a Monday report.

“The group’s office assets are also well-positioned to ride on the general uptick in spot rents,” he adds.

According to commercial real estate services firm CBRE, Singapore’s Grade A Core CBD rents rose for the third consecutive quarter in 1Q18, improving by 3.2% q-o-q.

“As seen from OUE Commercial REIT’s (OUECT) results, negative reversions are starting to narrow, and we expect that momentum to continue into the rest of this year,” Ng says.

After incorporating its latest fair value estimate for OUECT and the market price of OUE Lippo Healthcare, OCBC is lowering its fair value estimate for OUE slightly to $2.25, from $2.28 previously.

As at 11.36am, shares of OUE are trading 4 cents down, or 2.2% lower, at $1.77. This implies a price-to-earnings ratio of 31.2 times and a dividend yield of 1.7% for FY18.

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