Have you stayed in a Pan Pacific or a ParkRoyal hotel before? Not many people realized that these two famous hospitality brands are actually based in Singapore. Both Pan Pacific and ParkRoyal are part of UOL Group Limited (SGX:U14) ([stock_quote symbol=”SGX:U14″ show=”name” nolink=”1″ class=”1″]) . UOL Group is part of the 30 constituents of the Straits Times Index (STI). It is a property company with presence in the residential and commercial development and hospitality management industries.
1. Stock Information
TICKER SYMBOL: SGX:U14
MARKET CAP: S$5.5 billion (May 2017)
2. Business Overview
UOL Group is a major player in the Singapore property industry with a market capitalisation of S$5.5b as of 18 May 2017. It owns a diversified portfolio of commercial, hospitality and residential properties spread across Singapore, China, the United Kingdom, Australia, Malaysia and other countries worth about $11.5b.
The group’s business comes under 5 segments:
- Property development: building and developing property projects for sale
- Property investment: leasing of commercial properties and serviced suites
- Hotel operations: running and operation of owned hotels
- Investments: vested in quoted and unquoted available-for-sale financial assets
- Management services: provision of hotel management services under Pan Pacific and Parkroyal brands
As at end of FY16, 87% of its assets is in Singapore, 4.5% in China, 3.6% in the United Kingdom, 2.4% in Australia and the rest in Malaysia, Vietnam, Myanmar etc.
Among the locally-listed property developer in Singapore, UOL Group rank 4th in terms of market capitalisation: $5.5b. Hong Kong Land Holdings ($17.8b) ([stock_quote symbol=”SGX:H78″ show=”name” nolink=”1″ class=”1″]) , CapitaLand Limited ($15.1b) ([stock_quote symbol=”SGX:C31″ show=”name” nolink=”1″ class=”1″]) , City Developments Limited ($9.5b) ([stock_quote symbol=”SGX:C09″ show=”name” nolink=”1″ class=”1″]) are ahead of UOL Group when it comes to market capitalisation.
3. Key Strengths
Significant discount to real asset value
UOL Group is trading at a significant discount to its real asset value. As at 31 Mar 2017, its real net asset value (RNAV) per share is $10.27 as shown in the Q1 report. It is currently trading at a market price of $6.83 per share. That’s a discount of 33.5% to its RNAV. This discount could serve as a buffer against big price drop during distressed market, as a lower price might attract investors to purchase its share. If its assets are fairly valued, that might mean that investors could potentially own a diversified portfolio of properties below its market price.
Well-diversified business model
UOL Group derived its revenue from fairly diversified sources across its business segments. As at end of FY16, it had 51% of its revenue from property development, 30% from hotel operations, 16% from property investments and the rest are from investments and management services. In terms of its assets, 65.3% of its assets are in property investments, 15.3% in property development, 11.3% in hotel operations, 7.4% in investments. With a sizeable percentage of its revenue from recurring sources such as hotel operations and property investments, UOL Group would be relatively sheltered from the negative impact should the local residential property market worsens
4. Key Opportunities
Gradual recovery of local property market
The property market in Singapore has subdued in recent years. This was due to an attempt by the government to prevent a property asset bubble from developing. While we can never be sure when will the property market turn around, we can take heart from the government’s recent actions which signalled the property sector may be stabilising. Recent calibration of the property cooling measures includes the waiting time of property sales without seller’s stamp duties (SSD) being reduced to 3 years, and the removal of Total Debt Servicing Ratio (TDSR) threshold for loans borrowed against the properties’ value with loan-to-value ratio of 50% and below.
Management commented during the recent Q1 result announcement that ‘conditions in Singapore’s private residential market appear to be stabilising following recent tweaks to the property cooling measures and improved sentiments’. Management stated that ‘pressure on office rents has abated with improving take-up rate and expected slowdown in supply’.
Pipeline of property launches next year
UOL Group plans to launch 2 residential projects in 2018 at Amber Road and Raintree Gardens. Coupled with existing Principal Garden project that is seeing brisk sales, UOL has a healthy pipeline of property launches in the next 1.5 years, offering good visibility to its revenue stream.
5. Key Risks
Possible economic slowdown
Singapore is facing a challenging economy outlook currently, with many geopolitical risks affecting the trade prospects in this region. The macro risk is particularly serious to an open economy like Singapore. Domestically, unemployment is creeping up and many traditional economic sectors are facing disruptions from latest technologies. The government has also warned that the restructuring journey of the economy will be tough and long-drawn. With a slowing economy, this may have a negative ripple effect on UOL future property launches’ sales. If this traslate to lesser tourist visits around Asia, its earnings from its hotel operations might suffer too.
Competitive land bank bidding
The group currently has limited land bank beyond the slated project launches mentioned above. Competition is heating up in the recent government land tender with developers submitting more aggressive bids to secure land parcels at strategic locations. One example would be the recent land sale at Stirling Road with a record S$1 billion bid for a pure residential site. UOL Group may have to compete for future land sales at higher prices. This could affect its balance sheet and cash flow negatively. The subsequent high pricing of home units may also affect sales further downstream.
As mentioned above, UOL Group is currently trading at 0.67 times of its net asset value and dish out a not-too-shabby 2.18% dividend yield to its shareholders. In the past 5 financial years, the group has traded within a range of 0.9 – 0.68 times to its net asset value.
7. Shareholding Structure
UOL Group is part of the business empire owned by the Wee Family, main shareholders of United Overseas Bank ([stock_quote symbol=”SGX:U11″ show=”name” nolink=”1″ class=”1″]). Unsurprisingly, its major shareholders largely come from the Wee family and related companies such as Kheng Leong, Haw Par Corporation ([stock_quote symbol=”SGX:H02″ show=”name” nolink=”1″ class=”1″]) and UOB. UOL’s largest shareholder is Wee Cho Yaw with a 34.1% effective stake, followed by Wee Ee Cheong with a 28.1% effective stake.
Financials for Q1 2017
In Q1 2017, UOL’s revenue was $350m, a 6% increase in revenue in Q1 2016. Profit before income tax increased by 4% over 2016 to $96m.
Its Debt-to-Assets ratio in Q1 is a healthy 0.24 times, a largely similar figure to that in the previous quarter (0.25).
UOL Group brought in a net cash flow from operation of $56.8m this quarter compared to $79.1m in Q1 2016.
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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in CS Chong’s personal capacity. It does not in any way represent those of his employer and other related entities. CS Chong does not own any companies mentioned.