FY21 Results Analysis: Riding on office tailwind
- Steady commercial portfolio and strong residential pre-sales offset hospitality weakness
- Positives: (i) strong residential sales, (ii) hospitality eyes a turnaround, (iii) office assets resilient
- Negatives: (i) retail portfolio remains challenged, (ii) softer residential demand in 2022
- Maintain BUY, TP S$8.40
Investment Thesis:
Trading below replacement cost. Backed by a quality portfolio of commercial and hospitality assets anchored in Singapore, we see UOL offering deep value, trading at 0.6x P/NAV, which is close to the lows seen in the global financial crisis (GFC).
Significant redevelopment potential. A majority of UOL’s assets are in Singapore’s Central Business District (CBD) with potential to be redeveloped into alternative mixed-use assets that offer upside to GFA and capital values, according to government’s Central Business District (CBD) incentive scheme. The group has embarked on a number of redevelopment projects (Odeon House, Faber House) which when completed in the medium term, present upside to NAV and earnings.
A UOL REIT? We believe the stock can potentially trade closer to its NAV if it unlocks value from its commercial and hospitality assets.
Valuation:
Our target price of S$8.40 is pegged to 30% discount to our RNAV.
Where we differ:
Our earnings estimates are more conservative than peers where we project a slower recovery in the hospitality industry.
Key Risks to Our View:
Slower economic recovery and rising unemployment. A longer drag in the economic recovery post COVID-19 and a potential wave will raise earnings risks.