UOL upgraded to 'buy' on timely acquisition of Marina Centre

SINGAPORE (Apr 16): DBS Group Research is upgrading UOL Group to “buy” from “hold” and raising its target price by 20% to $8.58, after UOL’s 50%-owned subsidiary United Industrial Corporation (UIC) raised its stake in Marina Centre.

UIC on Apr 12 announced it is acquiring the remaining 24.27% stake in Marina Centre Holdings (MCH) and 25% stake in Aquamarina Hotel (AHPL) for a total consideration of $675 million.

See: United Industrial Corp raises stake in Marina Centre to 77.34% with $675.3 million deal

“Following UOL’s tightening grip on UIC, the purchase of the minority stake in MCH is a surprise coup and should be read positively,” says lead analyst Rachel Tan in a Tuesday report. “We believe the acquisition to gain 100% stakes in MCH and AHPL is very timely.”

“With control over a prime integrated development comprising a retail mall and three hotels (Pan Pacific Singapore, Marina Mandarin and Mandarin Oriental Hotel) fronting the Marina Bay area, we believe UOL is positioned for asset enhancement / redevelopment riding on the government’s plan to rejuvenate the CBD,” she adds.

The Urban Redevelopment Authority (URA) last month unveiled the Draft Master Plan 2019, which envisions a more sustainable and liveable city state of the future.

Key strategies in the draft include broadening developments across the eastern, western and northern parts of the island to tap global gateway connections as well as increasing capacity at Paya Lebar Air Base and Greater Southern Waterfront.

The CBD will also be repositioned as a 24/7 mixed-use district for residents to work, live and play.

See: Singapore to have more CBD living, go underground to free space

“UOL is now positioned to unlock the value of its commercial and hospitality assets,” Tan says. The group, along with subsidiary UIC, “will be the biggest beneficiaries of any potential upside from any asset enhancements,” she adds.

Tan notes that UOL is currently trading at 0.6x P/NAV, at closed to 1 standard deviation lower than its historical average during the last property cycle from FY13 to FY17.

“We believe UOL could potentially trade closer to its NAV as it slowly unlocks more value from its commercial and hospitality assets. Our target price implies 0.8x P/NAV,” Tan says.

As at 12.30pm, shares in UOL Group are trading 0.7% higher at $7.41, implying an estimated price-to-earnings (PE) ratio of 19 times and a dividend yield of 2.4% for FY19.