CGS-CIMB and DBS Group have maintained a "buy" rating on UOL Group with a target price of $7.29 and $8.40 respectively.
This is despite UOL Group reporting a 1H20 loss of $82.1 million, due mainly to $263.8m fair value loss on investment properties. Excluding this, core profit after tax and minority interests (PATMI) would have been $103.6 million, down 37% y-o-y.
Despite this, UOL's balance sheet remains healthy, with net debt to equity of 0.32x, and gross cash and unutilised credit facilities of about $3.9 billion as at end-1H20.
DBS analysts Rachel Tan and Derek Tan said the hospitality segment was the most affected, with revenue falling 57% y-o-y.
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Singapore and Australia hotel portfolios recorded the largest declines, and there was an absence of contribution following the closure of PARKROYAL COLLECTION Marina Bay and PARKROYAL KL for major refurbishments and divestment of Pan Pacific Suzhou.
CGS-CIMB analyst Lock Mun Yee said while recovery remains uncertain in the near term, management indicated that domestic travel in Australia and China, as well as the staycation business in Singapore, may help with near-term prospects.
However, Tan and Tan also cite stable occupancies and rental reversions in UOL’s commercial properties, and said office and retail occupancies have remained relatively stable at 95% and 94% respectively, and rental reversions remain flattish in 1H20.
They add shopper footfall at its retail portfolio has returned close to 50% of pre-COVID levels, but warned that retail sales are still slow.
Despite the gloomy hotel outlook, Lock notes that residential sales are still moving for UOL.
Avenue South Residence is currently about 50% taken up, while The Tre Ver is 97% sold to date. Meanwhile, ongoing developments such as Amber 45 has seen a slight uptick in sales rate to about 88%.
In addition, the group plans to launch Clavon at Clementi Ave 1 in 4Q20, and its recently won 448-unit residential plot at Canberra Drive is slated to be marketed in 2021. Lock expects this to underpin the group’s residential earnings visibility.
She continues to like UOL for its “diversified business model with a high proportion of recurring income.” She said re-rating catalysts could come from a faster-than-projected recovery of its hotel operations, while a downside risk could be from a slower-than-expected pace of residential sales.
Shares of UOL Group closed at $6.69, up 5 cents or 0.75% higher than its last close of $6.64.
