Analysts remain bullish on UOL despite 51% drop in FY18 earnings to $433.7 mil on absence of one-off gain

SINGAPORE (Feb 27): Analysts from OCBC Investment Research and CGS-CIMB Research are staying positive on UOL Group, despite the property company reporting a 51% drop in full-year earnings to $433.7 million for the FY18 ended December.

The decline was mainly due to the absence of a one-off gain of $535.6 million in FY17 on the consolidation of United Industrial Corporation (UIC).

Excluding this one-off gain, UOL’s earnings would have been 26% higher in FY18.

OCBC is keeping its “buy” call on UOL with a slightly higher fair value estimate of $8.45, raised from $8.41 previously.

According to OCBC analyst Andy Wong Teck Ching, UOL’s FY18 results met the brokerage’s expectations.

Meanwhile, CGS-CIMB is maintaining its “add” call with an unchanged target price of $8.45.

UOL saw its gross profits grow 39% to $987.5 million in FY18, as profit margin rose 7 percentage points to 41%. This was supported by higher revenue from property investments, which commands higher profit margins compared to property development.

FY18 group revenue grew 13% to $2.40 billion on the back of the full year consolidation of revenue of the expanded group.

Revenue from property development fell 15% to $989.3 million, mainly from the completion of Alex Residences and Principal Garden in September 2017 and December 2018, respectively.

Revenue from property investments increased 60% to $541.0 million following the consolidation of UIC’s investment properties and 120 Holborn Island.

Hotel ownership and operations, including those of UIC’s hotels, was up 29% to $678.7 million, while revenue from management services and technologies climbed 163% to $140.1 million mostly from the technology arm of UIC.

Dividend income grew 62% to $48.2 million with higher dividends from United Overseas Bank in FY18.

“Residential revenue and profits were boosted by profit recognition from P1 of the Park Eleven project in Tianjin where 47 of the 156 pre-sold residential units were handed over. The remaining 109 units are expected to be handed over progressively in 2019,” says CGS-CIMB analyst Lock Mun Yee. “We expect this project to generate attractive margins when monetised given its low land cost.”

UOL has proposed a first and final dividend of 17.5 cents per share, same as a year ago.

As at end December, cash and cash equivalents stood at $673.4 million.

“With the property cooling measures imposed last year, land prices will moderate and en bloc sales will have very limited traction. However, projects with land price advantage, strong product differentiation and in locations with limited supply, will see healthy take-up,” says Liam Wee Sin, UOL’s group chief executive.

“Going forward, with the consolidation of UIC, we will play to our strengths of scale for office portfolio, strong execution for our residential projects, a shift towards experiential appeal for our retail malls and expansion of our hospitality footprint,” Liam adds.

While land tenders have become more subdued, both Wong and Lock believe UOL will continue to adopt a selective approach towards replenishing its landbank.

“Looking ahead, UOL will launch two projects in 2Q19, namely MEYERHOUSE and Avenue South Residence. MEYERHOUSE is a freehold project at 92-128 Meyer Road, and management will position it as a highly differentiated high-end product with large format units,” Wong says.

As at 3.35pm, shares in UOL are trading 2 cents higher at $6.79. According to OCBC valuations, this implies an estimated price-to-earnings (PE) ratio of 15.6 times and a dividend yield of 2.6% for FY19.