SINGAPORE (June 27): OCBC Investment Research and CIMB Research are positive on news of UOL group’s share swap deal with Haw Par Corp, through which UOL will issue 27.3 million new shares in exchange for 60 million UIC shares owned by Haw Par.
After the transaction, which has a long stop date of Oct 31 this year, UOL’s stake in UIC will rise to 48.94% from 44.7% previously.
See: UOL a step closer to achieving ‘statutory control’ of UIC in share swap deal with Haw Par
From Lee’s analysis, the transaction is hence accretive for UOL, which will deepen the group’s effective ownership stake in desirable UIC assets such as Singapore Land Tower and Marina Square.
“Moreover, as the domestic housing market draws closer towards a cyclical bottom, this move will also boost UOL’s local residential exposure through UIC’s condominium projects. This is positive particularly as land tenders in Singapore continue to be competitive, with many cash-rich developers, both local and foreign, vying to replenish their dwindling land-bank amidst improving buyer sentiments,” he adds.
Assuming that the group achieves statutory control of UIC in the future, in addition to significant operational synergies, Lee believes that the enlarged UOL-UIC entity will also find stronger alignment in “exploring multiple possibilities for unlocking value from their sizeable combined commercial portfolio” – such as asset interplay and enhancements, redevelopments or even capital recycling into a REIT structure over the longer term.
CIMB lead analyst Lock Mun Yee has likewise recognised the transaction as a positive and accretive one for UOL, albeit minor, as the recognition as additional income will be partly offset by the 3.3% expansion in the group’s share base.
She nonetheless estimates the deal to result in a 3% uplift in the group’s RNAV to $9.98.
“We continue to like UOL for its diversified earnings base and exposure to the Singapore residential and commercial market that makes up circa 70-75% of its asset backing,” says Lock in a separate report issued last week on Friday.
“Key catalyst for share price performance would be continued good sell-through rate for its residential projects. Key risk is a slowdown in the residential transaction volume.”
As at 10.45am, shares of UOL are trading 1.6% higher at $7.72, while Haw Par is up by 4 cents at $11.24.