• FY19 core PATMI fell 5.8%
• DPS of 17.5 S cents
• Exploring redevelopment and AEI options amid COVID-19 disruption

FY19 Results Fell Short of Our Expectations

UOL’s FY19 results came in below ours and the street’s expectations. Group revenue fell 4.8% to S$2,283.3m due largely to a 14.4% and 3.7% dip its property development and hotel ownership and operations segments, respectively. PATMI rose 14.5% to S$478.7m, but if we strip out fair value gains on investment properties and other gains/losses, core PATMI came in at S$313.7m. This represented a decline of 5.8% and was 12.7% below our forecast. A first and final dividend of 17.5 S cents per share was declared, similar to FY18 and our forecast, which translates into a dividend yield of 2.4% based on a closing price of S$7.37.

Hotels Business Still Struggling While Retail Footfall Has Rebounded

UOL’s shopper traffic for its retail malls inched up 1.6% in 2019. This subsequently came down by as much as 30% during the peak of the COVID-19 outbreak, but has since almost recovered to preCOVID-19 levels. Occupancy rates for its Singapore hotels are around 40-50% in Feb, and management will look to accelerate AEIs for some of its hotels, such as renovation works estimated at S$45m for PARKROYAL COLLECTION Marina Bay (formerly Marina Mandarin Singapore).

Disruption to Supply Chain; Exploring Redevelopment Options

On the residential front, UOL booked sales for 904 residential units with a total value of ~S$1,337m in Singapore in FY19. The main contributors came from Avenue South Residence (446 units) and The Tre Ver (402 units). It intends to launch its Clementi Avenue 1 site (located near Clementi MRT) in 3Q20. Management also highlighted that the COVID-19 outbreak has affected the construction supply chain of development projects, with the PPVC (prefabricated prefinished volumetric construction) projects affected the most.

UOL believes there could be scope for the government to review the current ABSD and project completion period (PCP) deadlines if the COVID-19 situation remains protracted. Despite uncertainties, UOL will continue to explore redevelopment opportunities, such as the 333 North Bridge Road site (999-year leasehold) which it acquired for S$79.3m in Dec 2019. This is located adjacent to its Odeon Towers, and thus there are plans to combine both properties to create a product with larger and more efficient floor plates.

Another redevelopment possibility is Faber House, which can potentially garner a higher GFA. After adjustments, our fair value estimate increases to S$9.60 (previously S$9.25), still pegged to a 30% discount to our RNAV forecast.

Source: OCBC Research - 2 Mar 2020