OUE

OUE: OUE’s results were below estimates with 3Q14 net profit up 23.1% to $16.5m. Stripping out fair value gains, core profit before tax (PBT) was up 52.1% to $20.2m taking 9M14 core PBT to $37.9m (+2.1%). Revenue fell 10.8% to $106.3m, due to lower development property income (-38.4%) and hospitality income (-9.9%), as a result of lower residential sales and the absence of contribution from the China hotels which were disposed in 3Q13. The property investment division saw revenue decline 4.1%, as 3Q13 included contribution from Mandarin Gallery, which is currently held through associate, OUE H-Trust. This was partially offset by revenue contribution from Lippo Plaza, acquired by OUE Commercial REIT (47.8% owned by OUE) on 27 Jan ‘14. Income from associate and JV contributions however almost tripled to $12.9m, due mainly to the recognition of the group’s share of results of OUE H-TRUST and increased contribution from One Raffles Place with the opening of its revamped retail mall in May ‘14. Bottom-line was further aided by a drop in admin expenses at $10.9m (-20.5%) on back of lower legal and professional fees, and a 51.4% decline in other operating expenses to $3.8m, attributable to the absence of loss on disposal of PPE arising from upgrading works on the hotels in 3Q13. Going forward, OUE guides that the development of the extension building to Crowne Plaza Changi Airport will be slated for completion in 2015, which will add another 243 rooms to the existing 320, while AEIs at OUE Downtown and US Bank Tower are currently underway. OUE currently has a net gearing of 44.6%, and at $2.14, the group trades at 0.52x P/B and remains an asset-based value play. Latest broker ratings: Daiwa maintains Buy with TP $3.20 Deutsche maintains Buy with TP $2.43