Monday, 3 March 2014

OUE Ltd

Kim Eng on 3 Mar 2014

  • Reporting a headline loss of SGD36.6m in FY13, we estimate OUE’s core PATMI to be SGD43.5m (-33.9% YoY) and below expectations, due partly to higher-than-expected taxes.
  • Following the listing of OUE C-REIT, OUE has cash of SGD730.6m and is on the lookout for acquisitions.
  • Trading at a 45% discount to RNAV, valuations are attractive for a company actively seeking to unlock shareholders’ value. Maintain BUY and TP of SGD2.83.
What’s New
OUE suffered a headline loss of SGD66.3m in 4Q13, mainly due to revaluation losses on OUE Bayfront, OUE Downtown and Mandarin Gallery, but offset by the fair value gain on US Bank Tower. We estimate core 4Q13 PATMI to be SGD9.7m (+964.0% YoY, -46.7% QoQ). A final dividend of SGD 2.0 cts has been proposed, in addition to the proposed distribution in specie of one OUE-held H-Trust unit for every six shares in OUE, subject to EGM approval.

What’s Our View
OUE is continuing with a series of asset enhancements. One Raffles Place’s (ORP) retail podium is expected to open by April, and ORP could be divested to C-REIT by next year. Construction of the retail podium at OUE Downtown is underway and expected to be completed by 2016.
Management is actively exploring ways to extract value out of US Bank Tower, possibly converting part of the office space into apartments for sale. As for Twin Peaks, it is contemplating converting the unsold units into rental apartments with service when it obtains the Temporary Occupation Permit in 2015. These could subsequently be on-sold to OUE H-Trust.
OUE has a track record of sussing out interesting deals and has the balance sheet to do so. We maintain our BUY recommendation and TP of SGD2.83, pegged to a 35% discount to RNAV.

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