• FY14 net profits of S$1.1bn boosted by divestment of assets to OUE H Trust and fair value gains on investment properties
• Strengthen balance sheet with lower gearing ratio to 43.9% in FY14 from 57.2% in previous year
• Total dividend distribution for FY14 is approximately 15.9 cents per share.
• Maintain Accumulate with revised TP $2.50

What is the news?

OUE’s FY14 revenue of S$416mn -8.2% y-y and was slightly below PSR expectations by 2% due to lower development property income (-39% yoy), partially offset by increase in Investment Properties income (+14.2% yoy). FY14 PATMI of S$1094mn, however, beats our expectations by 11% due to higher fair value change in investment properties. Gearing ratio improved to 43.9% in FY14 from 57.2% a year ago. A final cash dividend of 1 cent per share was proposed, bringing the total cash dividend for FY14 to 2 cents per share. Including the distribution in specie of 1 OUE Hospitality Trust for every 6 ordinary OUE shares paid out in March 2014, the total dividend distribution for FY14 is approximately 15.9 cents per share.

How do we view this?

Upcoming AEI completions will strengthen recurring income – OUE has a pipeline of AEIs – including an observatory deck at the top of US Bank Tower (2H15), OUE Downtown Gallery (2016) and OUE Downtown serviced apartments (2016), scheduled for completion over the next 2 years. Upon the AEI completions, the recurring income will improve as performance of new assets normalised.

Special dividend from Crowne Plaza divestment – The first tranche of the divestment of the Crowne Plaza Changi Airport (CPCA) to OUE H Trust was completed on 30 Jan 2015 and the second tranche for CPCA extension (CPEX) should commence in 2016. The combined CPCA and CPEX will give a disposal gain of approximately S$116mn. Looking at the past history of special dividend payout of divestments to the REIT platform, we estimate a special dividend payout of 8-10 cents per share in 2016.

Potential bulk sale of Twin Peaks – So far, OUE has sold only about 17% of the Twin Peaks project and should look to re-launch the balance units soon. The management revealed that they may perform bulk selling for one block to a private equity if the pricing is right. Alternatively, they will seek to lease out the unsold units.

Investment Actions

We roll over our valuation and introduce our FY16 estimates. Maintain Accumulate rating with revised TP $2.50 derived via a 30% discount to our RNAV estimate of S$3.57.

Source: Phillip Securities Research - 17 Feb 2015