• Contribution from Downtown Gallery and Oakwood in FY17
• On the lookout to replenish landbank
• FV estimate lowered to S$2.28

Absence of One-time Gain From FY16

OUE saw its FY17 revenue drop 14.7% to S$754.1m, which was due to the disposal of the extension to Crowne Plaza Changi Airport to OUE Hospitality Trust in FY16. OUE would have recorded an increase of S$74.9m in revenue in FY17, assuming the exclusion of the one-off revenue of S$205.0m generated from the abovementioned transaction.

The group’s Investment Properties Division saw revenue increase by 2.4% to S$271.0m in FY17, due mainly to rental income from OUE Downtown office towers and contribution from Downtown Gallery, the latter having commenced operations in May 2017. Revenue from the group’s Hospitality Division increased 9.1% to S$220.1m, with increased contribution from both Mandarin Orchard Singapore and Crowne Plaza Changi Airport.

We note that Oakwood Premier OUE Singapore (serviced apartments at OUE Downtown), which was opened in June 2017, also contributed positively to the top-line. All-in, PATMI fell 31.5% to S$98.9m, with the drop partially mitigated by higher fair value gains on investment properties.

Valuations Undemanding

Various sector tailwinds appear to position OUE favourably for 2018. Within the office space, Grade A Core CBD Rents increased QoQ by 3.3% in 4Q17 to S$9.40 psf/month, according to CBRE. Within the hospitality space, we note that large biennial events are expected to spur demand, even as the hospitality market continues to absorb additional supply injected in 2H17.

We believe that management is on the lookout to replenish the group’s Singapore residential landbank, given the completion of sales at OUE Twin Peaks. The group is also positioned to expand into healthcare real estate, through OUE Lippo Healthcare’s growth path. In light of these factors, we deem current valuations undemanding.

OUE is trading at 0.43x price-tobook, which is just ~0.7 standard deviations below the 5 year mean. With a change in covering analyst, we adjust our assumptions to arrive at our fair value estimate of S$2.28 (previously S$2.47).

Source: OCBC Research - 26 Feb 2018