A closer look at an uncontested winner among Singapore’s developers

SINGAPORE (March 31): CIMB Research is reiterating its “add” recommendation on property developer UOL Group, which remains the research house’s top pick among Singapore developers with an unchanged target price of S$7.96 (RM25.21).

In a Thursday report, analysts Lock Mun Yee and Yeo Zhi Bin say they continue to like UOL for its diversified business model and strong recurrent cashflow, and say that any volatility in the group’s earnings will present an opportunity for stock entry.

They also expect recurrent income from rental, hotel operations and dividend income to continue providing the group a stable income base.

“UOL has one of the highest recurrent income bases amongst peers, accounting for c.86% of total PBIT (incl. 44.6% share of UIC’s contributions), backed by an attributable 3.4 million sf of commercial/retail space in Singapore and more than 10,000 owned and managed hotel rooms,” explain the analysts.

“Despite short term challenges in the office and retail sectors, it has fairly high portfolio occupancy due to the niche locations of its properties, within the Newton/Novena area. In the longer run, it may potentially monetise mature office assets,” they add.

Lock and Yeo also note that since the launch of Clement Canopy in early march, the group’s new condominium development has enjoyed a good take-up rate with about 52% of the project sold to-date. This is in addition other ongoing projects, which they observe are benefiting from improved market sentiment with increased sales rate.

“Apart from three remaining projects with an effective share of 700 units, UOL will continue to tap the government land sale and enbloc markets to restock inventory,” say Lock and Yeo.

UOL’s recent capital redeployment into completed assets such as their recently-purchased Hilton Melbourne South Wharf, to be rebranded into a Pan Pacific Property, is set to deepen the group’s earnings base and brand awareness in Australia, in UOB’s view.

The analysts also highlight that the group’s gearing of 0.24x as at 4Q16 provides significant headroom for medium-term expansion possibilities.

Presently, UOL’s stake in United Industrial Corporation (UIC) stands at 49.6612% – and whether the group eventually crosses the 50% shareholding in UIC, or not, is key to determining a clearer look-through valuation of the group’s underlying assets, and narrow its gap to RNAV, say Lock and Yeo.

As at 2.35pm, shares of UOL are trading 1 Singapore cent lower at S$6.99. — theedgemarkets.com.sg

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