What is the news?

OUE reported FY12 revenue of $417.9mn, an increase of 26%y-y mainly due to higher contributions from hospitality, property investment and property development divisions. The top line exceeded our expectations by 9.5%.

Contributions from associated co. however turned negative to -$24mn (FY11:$40.5mn) due to share of One Raffles Place’s reval losses of $40.6mn in FY12, compared to reval gain of $21.3mn in the prior year. In addition, the group also recognised lower reval gains of $24.5mn in FY12 (FY11: $253.1mn) on its investment properties. PATMI as a results decreased 76%y-y to $90.1mn. The management proposed a final dividend of S 3cents and special dividend of S 5cents, bringing the total FY12 dividend to S 11cents.

How do we view this?

While revenue and operating profits beat our expectations, reval losses on ORP were a tad negative surprise to us. The group will continue to focus on asset enhancement works at ORP and 6 Shenton Way retail podium, and CPCA extension. We also see potential upsides from potential acquisitions, and divestments of hotel assets in the year ahead.

Investment Actions?

We increase the fair value from $2.83 to $3.07. Upgrade to Accumulate. Downside risks include poorer than expected leasing progress at ORP and 6 Shenton Way, and prolonged slow sales progress at Twin Peaks.

Source: PhillipCapital Research - 27 Feb 2013