• 2Q19 core PATMI -1.0% YoY
• Valuation uplift
• Evaluating strategic options at MCH

2Q19 Results Within Our Expectations

UOL reported its 2Q19 results which met our expectations. Group revenue fell 19.7% YoY to S$512.3m due to lower progressive recognition from development projects. However, PATMI jumped 48.1% YoY to S$195.4m as a result of a higher gross profit margin and fair value gains on investment properties.

Excluding this, we estimate that core PATMI would have declined slightly by 1% YoY to S$91.7m, or 25.2% of our FY19 forecast. For 1H19, UOL’s revenue and core PATMI declined by 3.7% and 2.3% to S$1,253.5m and S$164.0m, respectively.

Firm Revaluation Gains, Largely From UIC Properties

As at 30 Jun 2019, UOL’s The Tre Ver project was 54.9% sold. However, current sell-through rates have reached 81% based on bookings received. Following a portfolio revaluation exercise, UOL recorded fair value gains of S$181.9m in 2Q19. This was driven largely by UIC’s office portfolio, which saw a compression in cap rates by 25 bps. There were no changes in cap rates applied for UOL’s properties.

Operationally, UOL’s retail portfolio saw a high committed occupancy of 97%. Velocity@Novena Square shopping mall achieved strong double-digit growth in tenants’ sales; United Square had a marginal increase, while KINEX was negative.

Management highlighted that it would take time to reposition the mall. However, there are some encouraging signs, as valuation for KINEX was raised by 0.8% to S$397m from end-FY18, as the valuer had incorporated slightly higher rental assumptions.

Rental reversions for UOL’s retail portfolio grew 5-6%, while office was marginally positive. For its hotels segment, RevPAR was flat YoY as corporate demand saw some weakness.

Engaging Authorities on Potential Marina Centre Holdings (MCH) Rejuvenation

Following UOL’s full-control of MCH (including UIC stake), the group has actively engaged the authorities on potentially undertaking a rejuvenation of the assets as part of the Strategic Development Incentive from the 2019 Draft Master Plan.

UOL has plans to value add to the precinct, and discussions have been positive. While an approval is likely still some distance away, we believe the longer-term prospects look exciting.

In terms of nearer-term initiatives, UOL would focus on the launch of Avenue South Residence in 3Q19. Pricing would likely be strongly supported by the ASPs and take-up rates achieved at One Pearl Bank and Sky Everton. We maintain our S$8.50 fair value estimate on UOL.

Source: OCBC Research - 13 Aug 2019