BUY S$4.56 STI : 2,719.90
Price Target : 12-Month S$ 5.27 (Prev S$ 5.19)
Reason for Report : Company update
Potential Catalyst: Landbanking activities
DBSV vs Consensus: Ahead for 2011, below for 2012
• Resilient with multi-growth engines
• Beneficiary of redeveloping UIC Building
• Maintain Buy, TP $5.27 with 16% upside
Reiterate Buy call on UOL. UOL is trading at a 26% discount to RNAV of $6.20 and offers 16% upside to our TP of $5.27, pegged at a 15% discount to asset backing. Our RNAV values the quoted equity component based on our target prices. Using the latest traded prices, this figure would be even higher at $5.35. UOL has a resilient business model comprising residential development (27% of RNAV), strong recurring income from leasing (28%), hotel operations (17%) and dividends from quoted investments (28%).
Gunning all engines. The group’s existing residential landbank is located in Spore and China. It has a total attributable 518 residential units in Singapore, comprising the Lion City Hotel redevelopment (240 units) and a 50% share of 530-condos and 26 landed units in Bedok Reservoir. The latter parcel will be launched in 2H11. Surrounding condos are transacting between $950-1,000psf and we believe it would be able to rake in decent margins of 10-15% at these levels. The landed component is receiving strong buying interest given its attractive surroundings. The Lion City site will be transformed into a residential/retail development when launched in 2012. Our RNAV has captured an ASP of $1200psf for this project. The group is relatively cautious on the physical market outlook and will adopt a selective landbanking strategy. It has a comfortable gearing of 0.41x. Meanwhile, its retail and office properties are almost fully occupied with rising rental rates. At its hotel arm Pan Pacific Group, conversion of part of the existing furniture mall into 180 serviced suites at The Plaza, Beach Rd extension is underway and should boost earnings when completed in 4Q12 given the robust industry demand.
Added catalyst from UIC due to redevelopment of UIC Building. UOL will benefit from the redevelopment of UIC Building, through its 42.7% stake in UIC. The mixed residential/commercial development is expected to start construction early next year and the residential portion to be launched in 1H12. The outstanding differential premium on the property is likely to be locked in over the coming few months. We reckon UIC could realize an estimated $172m gains from this project over its existing carrying book cost.
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