Overseas Union Enterprise - More to come (CIMB)

OUTPERFORM Maintained

S$2.87 Target: S$3.93

Mkt.Cap: S$2,817m/US$2,336m

Property Devt & Invt

• Below; but more to come later. 2Q11 core net profit of S$20m forms 15% of our FY11 forecast and 11% of consensus, with 1H11 earnings at 31% of our forecast. The miss was due to lower income from OUEB and delays in the sale completion of Crowne Plaza (CP) – a timing issue. OUEB is now 77% leased while the sale of CP was only recently completed. We expect much stronger numbers in 4Q11-1Q12. We adjust our core EPS estimates by -9%/+4% to reflect this. Elsewhere, strong hotel revenue mirrored industry trends. We reiterate our expectation of a 28-30% yoy income surge in 2012-14 as its acquisitions start to deliver. Maintain target price of S$3.93 (15% discount to RNAV). Higher RevPar, additional office precommitments and more accretive acquisitions (debt headroom of S$1bn-1.5bn on 45-50% adjusted net gearing) could provide stock catalysts, in our view.

• More income to come from OUEB and Crowne Plaza. 2Q11 revenue surged 40% yoy to S$72m, though this still fell short of our estimate as OUEB contributed less while there were no contributions from CP, a timing issue. We understand that BOA-ML, the anchor tenant of OUEB, will only move in by 1Q12. New tenants were recently signed up for the office block which include Hogan Lovells (law firm) and UBP (Swiss bank), lifting pre-commitments from 68% to over 77%. The retail component of OUEB (OUE Tower and OUE Link) is also fully tenanted. No income from CP was booked in 2Q11 as the acquisition was only officially completed on 25 Jul, three months longer than expected. We expect OUE to starting reporting much stronger earnings in 4Q11-1Q12.

• Mandarin Orchard continued to do well; DBST starting to make full-year contributions. The strong revenue growth was bolstered by a 7% yoy increase in Mandarin Orchard’s revenue and contributions from DBST. RevPAR for the former inched up 3% yoy to S$233. Occupancy is believed to be 82-85%. We understand that OUE wants to expand its average day rates beyond S$300 by end-2011. Rents at DBST are still at S$5psf levels but could be substantially uplifted in 2013-14 once old leases expire and a proposed retail podium becomes operational.

• Interim dividend. OUE has proposed an interim dividend of 2cts. Management was previously committed to a payout of at least 50% every year.