• 1Q16 PATMI up 4% YoY
• Results in line with expectations
• Expect headwinds across biz segments

1Q16 results within expectations

UOL’s 1Q16 revenues increased 39% YoY to S$330.1m mostly due to a firm contribution from the group’s property development business (up 112% YoY to S$164.3m) as we saw higher progressive recognition from previously launched projects, and also solid contributions across the group’s investment properties, hotel and management services segments.

That said, we saw the group’s share of profits from associates and JVs dip 12% YoY to S$34.1m over the quarter given the absence of contribution from the Archipelago development - a JV with United Industrial Corporation Ltd - which attained TOP in Sep 2015. As a result, 1Q16 PATMI rose 4% YoY to S$77.1m; this constitutes 18% of our full year forecast and we judge this to be broadly in line with expectations.

Defensive approach to a tough market

While the group’s earnings were supported by progress billings from previously sold units and earnings from its recurring income segments, management indicates that they expect muted outlooks across various business segments ahead. Buyer demand in the domestic housing space is expected to stay sluggish, and rentals in the office and retail sectors will continue to be pressured by a heavy supply in 2H16 and retailer consolidation in a challenging market, respectively.

Amidst a difficult market with various headwinds, we favor UOL for its defensive and pragmatic approach to landbanking and lease management and its healthy balance sheet (with a relatively low 27% gearing as at end Dec 2015 and S$269m of cash) and we continue to see fundamental value in its shares at current prices.

Maintain BUY with an unchanged fair value estimate of S$7.43.

Source: OCBC Research - 13 May 2016