OUE

OUE: DBSV has an unrated report on the counter. House tip OUE as a Pure play into core real estate sectors in SG. With a SG oriented portfolio (97% of RNAV), OUE offers a unique exposure to Singapore’ prime assets across various real estate segments – office, hotel, retail and residential. OUE delivered 33% EBITDA CAGR to S$205m in FY10-12A. Growth was driven largely through rejuvenation of its office and hotel assets coupled with strategic acquisitions (6 Shenton Way in 2010 and Crown Plaza Changi Airport in 2011), forming a growing recurrent income base for the group. Looking ahead, expect the group’s portfolio to continue undergoing transformation via: addition of retail space at One Raffles Place retail podium and 6 Shenton Way, (ii) growing its hospitality portfolio through construction of an additional 240 rooms in an extension wing at Crown Plaza, while the proposed conversion of 2 towers at 6 Shenton Way and Twin Peaks into serviced residences is expected to underpin the next uplift in recurring income. Add that OUE is re-looking at its plan to list a hotel REIT, which house believe is likely to include its flagship Meritus Mandarin Hotel and Crowne Plaza Changi Airport Hotel in SG and potentially include the converted towers at Twin Peaks and DBS Tower. This listing could potentially reap a valuation surplus of up to $1b in value for the group. House has a Fair value $3.16 (10% upside) on grp. Fair vlaue is pegged to 25% discount to RNAV. Downside for the stock is likely to be a delay or inability to launch the proposed hotel REIT could mean a lack of catalyst to close share price gap to fair value.