August 7, 2017

UOL reported 2Q17 net profit of S$109.4m, +59% yoy, in line with our expectations. Stripping out fair value gains, core net profit was S$100m, +11% yoy. The improvement was due to higher associate contributions from UIC and better property development income.

2Q residential development revenue rose 19% yoy to S$221.2m, thanks to better contributions from Principal Garden. The project was 71.8% sold as at end 2Q (vs. 55.4% in 1Q) and saw a marginal improvement in ASP. Riverbank @ Fernvale and Botanique at Bartley were almost fully sold. Meanwhile, The Clement Canopy saw another 20% taken up since its launch in 1Q, bringing its sales rate to 58.8%.

The group targets to launch its 2 remaining land parcels at Amber Rd and the former Raintree Gardens enbloc sites in 2018F. These 2 sites have a total saleable area of 699,000 sq ft with a potential of 890 units. We reckon it can generate decent PBT margins when marketed given that these sites were purchased in 2H16 at lower land costs. In London, another 160 residential units at Bishopgate can also be marketed in 2018.

2Q rental revenue grew 2% yoy to S$56.4m, with additional contributions from 110 High Holborn, purchased in Jun 16. In Singapore, although occupancy remained at a high 90%, the group saw a small negative rental reversion for its office portfolio, similar to other landlord peers. On the retail front, operating conditions for One KM Mall remained challenging given the new upcoming supply in the Paya Lebar area. Nonetheless, occupancy remained high, in excess of 95%.

Hotel operations saw a 1% yoy dip in revenue, dragged by a small decline in Singapore and Perth RevPAR. This was partly offset by higher RevPAR in Sydney and Melbourne. Looking ahead, management indicated that the hospitality operating environment in Asia Pacific was likely to remain competitive. Hence, we expect this segment to deliver very modest growth in 2H17.

We raise our FY17 EPS estimate by 14.4% to factor in the recent round of revaluation gains and tweak our FY18-19F EPS post results. However, we lift our RNAV by 13% to S$11.29 as we i) increase our UOB TP by 14.5%, ii) relook our underlying assumption for UIC’s assets, and iii) factor in a higher 48.9% stake in UIC due to the recent proposed share swap with Haw Par (pending shareholder approval). Consequently, our RNAV-based target price is raised to S$9.03, pegged at a 20% discount, maintain ADD. –CIMB

UOL closed at: S$8.160