Ahead of UOL Group’s upcoming 1HFY2024 results ended June 30, OCBC Investment Research (OIR)’s research team is lowering its target price from $8.24 to $8.11, but are keeping their “buy” call. UOL will be announcing its results on Aug 13.
In its Aug 6 report, the team expects to see flat to slight positive core earnings growth for UOL’s upcoming results. They say that the group’s property development segment has already achieved “decent” take-up rates and high percentage of completion, which means that there would be a lower proportion of revenue left to be recognised (based on percentage of completion method).
For its property investments portfolio, the analysts take reference to the Singapore REITs (S-REITs) that have already reported their 1HFY2024 results, and note that Far East Hospitality Trust Q5T and CDL Hospitality Trusts J85 (CDLHT) (both non-rated) achieved y-o-y revenue per available room (RevPAR) growth of 6.4% and 7.7% for their Singapore hotel operations.
Meanwhile, rentals of retail space in the Singapore market were flat q-o-q in 2Q2024 after a slight decline of 0.4% in 1Q2024, while that of office space rose 3.1% q-o-q in 2Q2024 after seeing a dip of 1.7% in 1Q2024, based on Urban Redevelopment Authority (URA) statistics, they note.
The analysts note that there has been a “resilient but moderate” private residential property price growth, and a weak new homes sales.
The number of homes sold in the private resale market rose 16.0% y-o-y to 6,491 units, and accounted for 71% of overall private market transactions in 1H2024. “This trend, if it continues, does not bode well for UOL, although we believe it has a couple of good projects that are slated for launch in 2H2024,” they say.
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Two new projects, Meyer Blue, a freehold project near East Coast Park and a large mixed-use development site at Tampines Avenue 11 are among the launches in the second half of 2024.
“On the transactions front, volumes have come under pressure, as new home sales by developers dipped 44.2% y-o-y to 1,889 units in 1H2024. Besides affordability issues, the number of sales transactions in the primary market was also impacted by a push back in new launches and a shift in consumer preference to resale units,” the analysts say.
UOL is currently undertaking a number of asset enhancement initiatives, redevelopment projects and has also participated in residential land tenders such as the Government Land Sales (GLS) site at Holland Drive.
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The analysts expect management to maintain a prudent approach on its capital management.
They finetune their assumptions and trim their fair value estimate slightly from $8.24 to $8.11.
Overall, the team sees UOL’s Singapore residential portfolio as “resilient” notwithstanding the pandemic and several rounds of property cooling measures by the Singapore government.
“Management is well known for its prudent land banking strategy. UOL also has a diversified investment properties portfolio with a strong presence in the commercial and hotel industries, thus allowing the group to generate recurring income streams,” says OIR.
“Given UOL’s healthy balance sheet, it is able to embark on redevelopment projects and asset enhancement initiatives to rejuvenate its portfolio,” it adds. “While management is also on the lookout for investment opportunities, there still exists a gap between buyers and sellers, and thus patience is needed to extract better value on this front, in our view.”
Shares in UOL Group closed 2 cents higher or 0.377% up at $5.32 on Aug 8.
