OUE

OUE: Phillips initiates coverage at Buy with $4.28 TP, with zero premium/discount applied to RNAV, representing 18.9% upside over Fri's closing price. Note that OUE's revenue is strengthened with the acquisition of DBS Towers in Aug10, while FY11 earnings will be further reinforced by the completion of two Grade-A office buildings - OUE Bayfront in 1Q11 and One Raffles Place Tower Two in 2H11, and recognition of sales from residential development Twin Peaks….

Tips rev growth in FY10 and FY11 at 46% and 83%, respectively. Highlight that 48% and 23% of its GAV are derived from office and hotel properties, and these sectors are expected to remain positive in 2011 supported by sound economic fundamentals in the region. Add that spinning off assets into a REIT is another excellent option available to OUE as a move to crystallize its investment value while retaining a controlling stake over the properties.