SINGAPORE (Mar 4): Property developer UOL Group has no shortage of headwinds.
Already reeling from the impact of property cooling measures in Singapore, UOL’s commercial, retail and hospitality assets also face rising challenges, exacerbated by the novel coronavirus outbreak.
For FY2019 ended December, the group saw its earnings fall below consensus estimates.
However, analysts remain optimistic that the property giant can weather the storms – earning it “buy” recommendations from all three recent brokerage reports spotted by The Edge Singapore.
Eight out of 10 research houses covering UOL have “buy” calls on the counter, with the remaining two having “hold” recommendations.
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 Mar 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.
The brokerage is keeping its “buy” recommendation on UOL, and raising its fair value estimate to $9.60, from $9.25 previously.
“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.
Lock Mun Yee, an analyst at CGS-CIMB Research, points out that UOL’s residential revenue decline 14% y-o-y to $847.1 million in FY2019.
However, she notes that the group has locked in $1.34 billion worth of residential sales in Singapore in FY2019, which will be progressively recognised going forward.
CGS-CIMB is keeping its “add” rating on UOL with an unchanged target price of $8.73.
“We continue to like UOL for its diversified business model with a high proportion of recurring income,” says Lock.
Among other things, she sees positives from UOL’s expected launch of its remaining Clementi Avenue 1 site in 3QFY2020, as well as possible commercial property asset enhancement opportunities on the horizon.
“Rental income from commercial and retail properties rose 2% y-o-y in FY2019, with slight positive rental reversion,” Lock says. “However, hotel revenue dipped 4% in FY2019 and continues to be adversely affected by the current decline in tourist arrivals. The group intends to accelerate its refurbishment programmes at Parkroyal Collection Marina Bay during this downtime.”
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 Mar 2 report.
Tan notes that UOL derives a significant 50-60% of its revenues from the retail, office and hotel segments, which she believes should continue delivering stable cash flows in the coming years.
“UIC’s portfolio of investment properties is complementary to the group’s exposure to largely city-fringe properties as a majority of the group’s properties are located in the CBD. The tight competitive supply within the CBD will result in potentially stronger rental reversionary prospects,” Tan says.
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.
Shares in UOL closed 1 cent higher at $7.40 on Wednesday.
According to DBs valuations, the counter is trading at an estimated price-to-earnings (P/E) of 12.8 times, a price-to-book value (P/BV) of 0.6 times, and a net dividend yield of 2.4% for FY2020F.
