UOL Group

CIMB RESEARCH on 4 March 2013

KEY issues discussed during the post-results investor luncheon that we hosted with UOL were its complicated group structure, the outlook for the commercial and hotel sectors and its capital deployment plans. We retain our view that UOL is now a much more investible stock.

We maintain our EPS estimates, target price basis of 20 per cent discount to RNAV (revalued net asset value) and "outperform" rating, with NTA (net tangible asset) growth from asset completions and the potential for a larger UOL/UIC (United Industrial Corp) entity being the near- and longer-term catalysts. Based on its valuations of 33 per cent discount to RNAV and 0.8x P/B, UOL offers a more attractive exposure to the Singapore commercial/hotel sectors than the S-Reits and its developer peers.

The main issues discussed at the luncheon with UOL were:

• management's constructive view of rents at its Novena and United Square, with FY13 lease renewals progressing well,
• its plans to remain a Singapore-focused entity with a strategy of building up its recurring income assets and
• its views on its stakes in UIC/SingLand and the longer-term plans for these core holdings.

The issues discussed reaffirm our view that asset valuations have room for growth. Some 46 per cent of United Square's leases will be up for renewal in FY13, with renewals in Q1 2013-Q3 2013 already largely firmed.

We believe that FY13 could still see some rental reversions, which will help push up book values.

UOL mentioned that it has been consistently enhancing its assets through redevelopments and AEIs (asset enhancement initiatives).

Left now are Odeon Towers and Faber House, unlikely candidates in our view. UOL has quietly deployed over $1 billion into recurring income assets and is looking for more in Singapore. The bulk of the capex has been committed. Its low net gearing of 0.28x leaves room for more acquisitions. UOL is likely to continue buying UIC shares in the market. The group (including Wee Cho Yaw-linked entities) now has a circa 49 per cent stake and will not be bound by the "creeping rule" (one per cent every six months) once it crosses 50 per cent.

OUTPERFORM