UOL Group

OCBC on 26 June 2012

We believe that mass-market prices would be underpinned by an environment of continued low rates and abundant liquidity in FY12, and favor developers with ample land-bank outside the central region (OCR). With only one domestic site in UOL’s land-bank currently, we believe that land acquisitions would now be key requirements for share price outperformance ahead. UOL’s management has a strong track record of timing the property cycle well with spot-on execution at launches and we think this is a key strength of the company. However, with limited exposure to a still healthy mass-market residential segment, we downgrade UOL to HOLD with an unchanged S$4.80 fair value estimate (30% discount to RNAV).

Land-banking key for share price outperformance
We believe that mass-market prices would be underpinned by an environment of continued low rates and abundant liquidity in FY12, and favor developers with ample land-bank outside the central region (OCR). With only one domestic site in UOL’s land-bank currently, we view land acquisitions to be key requirements for share price outperformance ahead. Management has indicated that they are actively looking out for acquisition opportunities and, with an ample supply of residential sites in the government land sales (GLS) programme, we see good odds that UOL would acquire new sites in the remainder of FY12.

Good execution at two key launches
Over the last six months, we saw UOL execute strongly on its two key residential launches in Singapore. The 577-unit Archipelago is now 70% sold at around S$1.0k-S$1.1k psf, and the 244-unit Katong Regency is fully sold. The remaining site in its landbank is a 137,561 sq ft freehold residential site at St. Patrick’s Road, acquired for S$172m in Dec 11, via an en-bloc transaction. In China, we expect the residential sales environment to remain challenging. We see a muted take-up rate for the Esplanade in Tianjin, and management is expected to take a tentative approach whereby it would first launch a limited number of units to test the market.

Downgrade to HOLD with unchanged S$4.80 FV
UOL has a strong track record of timing the property cycle well with spot-on execution at launches and we think this is a key strength of the company. Also, the group’s balance sheet is relatively healthy (cash S$334.2m and net gearing 33% as of end 1Q12) against potential macro-economic shocks from residual European uncertainties. However, we are cognizant that there is limited exposure to a still healthy mass-market residential segment for the remainder of FY12. Downgrade to HOLD with an unchanged S$4.80 fair value estimate (30% discount to RNAV).