UOL

UOL: (S$6.42) Fairly resilient 3Q15 amid gloomy outlook

UOL’s 3Q15 net profit dipped 1.7% y/y to $100.8m, broadly in line with estimates as 9M15 earnings of $327.6m (-2%)attained 78% of full year consensus.

Revenue slipped 18.3% to $354m due to lower contributions from property development and hotel operations, partly cushioned by rental income from its property investment segment.

Property development - Revenue: $174m (-33.3%)
The revenue gap came arose from completion of The Esplanade in Tianjin, China in 3Q14. Revenue recognised for 3Q15 included Botanique at Bartley (>70% sold), Riverbanks @ Fernvale (64% sold), Seventy St Patricks, and the recently TOP-ed Katong Regency.

Property investments - Revenue: $56.4m (+15.5%)
Rental revenue from its property investments grew with additional income from its OneKM mall, which opened in 4Q14.

Hotel operations - Revenue: $10.5m (-4.3%)
Performance was affected by refurbishment works at Pan Pacific Perth, and PARKROYAL Yangon, coupled with the weaker MYR and AUD.

Gross profit margin fattened 8ppt to 39% due to a change in its revenue mix as contributions from its property development typically carry lower margins.

Bottom line was affected by:
1) Higher marketing expenses of $16.5m (+63%) on expenses related to the ongoing sales of units at its residential projects as well as consolidated expenses of its OneKM mall and Pan Pacific Tianjin.
2) Finance expenses of $12.8m (+141.8%) on higher interest rates and unrealised FX losses on its USD borrowings.
3) Contributions from associates and JVs of $44.8m (+12.5%), mainly from UIC and 50%-owned Thomson Three.

The group’s gearing ratio improved to 0.31 from 0.34 as at end 2014 following on its repayments to borrowings as well as increased equity.

Management is relatively pessimistic on the group’s outlook on a triple whammy of muted residential sales, an oversupply glut in office space, and a subdued economic outlook in Asia Pacific affecting tourism.

Despite this, the group recently launched its 663-unit Principal Garden which saw a strong response with a 20% take-up rate and an average selling price of $1,630psf. Its residential project in Shanghai, China is slated for launch in 1Q16 and could underpin performance of its property development segment in the next few quarters.

UOL is currently trading at a relatively discounted 0.66x P/B.

Latest broker ratings:
CIMB maintains Add with TP of $8.24
OCBC maintains Buy with TP of $7.43