Asset monetisation to unlock value
- UOL has announced that it is divesting Parkroyal on Kitchener for S$525m.
- This is in line with its strategy to unlock value and reconstitute its overall property portfolio.
- Reiterate our Add rating, with a higher TP of S$8.20.
Unlocking value from Parkroyal on Kitchener
UOL Group announced on 4 Jul 23 the proposed sale of Parkroyal Kitchener Hotel Pte Ltd to Midtown Properties Pte Ltd. Parkroyal Kitchener Hotel Pte Ltd owns the Parkroyal on Kitchener Road (a 542-room hotel in Little India, SIngapore) and the New Park Shopping Arcade. The sale consideration is based on the value of the property, fixed at S$525m (vs. the Dec 22 valuation of S$423m). The transaction is expected to complete on 31 Oct 23.
Sale price is significantly higher than our estimate
We see this deal as positive for UOL as the transaction would enable the group to unlock value of its investment at an attractive price and is part of its strategy to reconstitute its overall property portfolio. Management indicated that the net proceeds from the disposal will be used for general working capital requirements. UOL guided that the gains from the disposal would be c.S$446.2m, as the book value of the sale shares (Parkroyal Kitchener Hotel Pte Ltd) stands at S$83.01m currently. In terms of financial impact, UOL’s pro forma Dec 22 NTA would increase by S$0.53 to S$13.08, while pro forma FY22 EPS would be lifted by S$0.537, post-transaction. The transaction price is higher than our current RNAV
valuation of S$334m.
Pinetree Hill condo slated for official launch on 15 Jul 23
Separately, UOL previewed its Pinetree Hill project on 29 Jun 23, with an official launch scheduled for 15 Jul 23. According to The Edge media report, the development attracted a strong turnout of 1,500 visitors on the first day of its public preview. The 520-unit condominium has a total GFA of 509,383 sq ft. The land cost of S$672m works out to be S$1,318psf. Average asking price of the units would be from S$2,236psf. We estimate the breakeven cost could be S$1,900-2,000psf and that the project would generate potential pre-tax profit of S$150m-200m when fully sold.
Reiterate Add
We raise our core FY23-25F EPS by 6.2-27.2% to factor in gains from the divestment of Parkroyal on Kitchener and interest savings, assuming the proceeds are used to pare down debt, partly offset by the income vacuum from the divested asset. Our RNAV is increased by 2.7% to S$13.66. Accordingly, our TP is lifted to S$8.20, based on an unchanged 40% discount to RNAV. We continue to like UOL for its diversified business model with a high proportion of recurring income. Potential re-rating catalysts could come from a faster-than-projected recovery of its hotel operations and further asset monetisation activities. Downside risks: slower-than-expected pace of residential sales and further property cooling measures that could adversely impact price and volume transactions.
