Company description
UOL Group Limited is one of Singapore’s leading public-listed property companies with an extensive portfolio of development and investment properties, hotels and serviced suites. With a track record of over 50 years, UOL strongly believes in delivering product excellence and quality service in all its business ventures. Its list of property development projects includes residential units, office towers and shopping malls, hotels and serviced suites. UOL, through its hotel subsidiary Pan Pacific Hotels Group Limited (PPHG), owns two acclaimed brands namely “Pan Pacific” and PARKROYAL. PPHG now owns and/or manages over 30 hotels in Asia, Oceania and North America with more than 10,000 rooms in its portfolio.

Buttonwood - UOL Group Limited - FY17 Revenue by Business Segment & FY17 Operating Profit by Business Segment

Buttonwood - UOL Group Limited - FY17 Average Occupancy for Commercial Properties & Dividends per share

Investment thesis

  • Government cooling measures a bane for outlook – The latest set of cooling measures on the Singapore residential property market (announced by the Singapore government on 5 Jul) includes raising the Additional Buyer’s Stamp Duty (ABSD) rates (except for Singapore Citizens and PRs making their first residential purchase) and tightening the Loan-toValue (LTV) limits for all housing loans granted by financial institutions. This would likely result in softer demand for physical property from both locals and foreigners, coupled with greater caution on future land bids and collective sales by developers. UOL would be negatively impacted by these measures, as we estimate that it has a pipeline of ~2,050 units ready to be launched in Singapore over the next 12- 18 months. Based on our previous forecasts prior to the announcement of the tightening policies, UOL’s Singapore residential projects (including UIC) formed ~15% of our GAV forecast. Close attention would be paid to its The Tre Ver project (Potong Pasir Avenue 1 site), which is expected to be launched this quarter. This was acquired at a reasonable all-in effective land cost of S$870 psf ppr, based on our estimates.
  • Incorporate more conservative assumptions – Given the punitive cooling measures in place which would likely impact UOL’s residential sales prospects ahead, we rejig our assumptions to incorporate the more challenging environment and negative sentiment surrounding the local residential sector. We factor in lower ASP assumptions and slower sales momentum, while also increasing our discount rate for UOL’s Singapore residential projects and widening our RNAV discount from 20% to 35%. Correspondingly, these changes lead to us cutting our fair value estimate from S$10.63 to S$8.48. UOL’s share price tumbled 13.6% to close at S$6.70 on 6 Jul 2018, a day after the new set of cooling measures were announced. We believe UOL’s shares have been oversold at current price level. UOL also has significant exposure to the office and hospitality sectors, which we believe are still undergoing a rental upcycle and RevPAR recovery, respectively, and also not affected by this round of cooling measures.
  • Stronger than expected take-up rates for its residential projects
  • Faster than expected increase in residential prices in Singapore
  • Unwinding of governments cooling measures
  • Very attractive valuation
  • High yielding dividend

Buttonwood - UOL Group Limited - Price/Book Chart & Dividend Yield Chart