OUE

OUE (S$1.75): 3Q15 property investments outshine development business

OUE 3Q15 results met expectations, despite net profit slipping 8.9% y/y to $15m, bringing 9M15 earnings to $75.9m or 79% of full year consensus estimate.

Revenue eased 6.9% to $98.9m, undermined by the absence of property development income (3Q14: $11.8m) from OUE Twin Peaks and a marginally weaker hospitality division (-1.5% to $52.4m), but partially cushioned by a stronger rental income (+15% to $43.7m) on improved occupancy at US Bank Tower.

As a result, gross margin shrank by 3.1ppt to 37.7%.

Bottom line was hit by higher administrative cost (+46.3%), higher finance expenses (+71.5%) and fair value losses of investments ($1.3m), but this was negated by FX gain of $8.8m from USD receivables and higher contributions from associates of $26.2m (+103%) after accounting for the results of newly acquired HK-listed Gemdale Properties & Investment Corp.

Net gearing eased to 0.41x from 0.44x following the divestment of Crowne Plaza Changi Airport (CPCA) to OUE Hospitality REIT (OUE H-REIT).

Going forward, management plans to stay focused on asset enhancement initiatives at OUE Downtown and US Bank Tower, both scheduled for completion in 2016.

As part of ongoing efforts to unlock its stabilised assets, the property group injected of its 83.33% stake in One Raffle Place into OUE Commercial Trust in Oct '15 and plans to divest CPCA’s 10-storey hotel extension to OUE Hospitality Trust upon completion of construction by Jun ’16.

OUE is currently trading at 21.7x forward consensus P/E and 0.4x P/B.