Quick Screening – UOL(U14.SI)

Quick Screening – UOL(U14.SI)



This column is written by @fayewang
-Faye is both a fundamental analyst and economist by nature. She is a global thinker who’s open-minded and enjoys learning from the market.

Recent News and Events:
UOL group, together with United Industrial Corporation (UIC) and Haw Par Corporation, requested for trading halt on 21 June. ‘All three companies are come under the United Overseas business owned by the Wee family, led by patriarch Wee Cho Yaw.’ The reason of the halt was a share swap deal signed by UOL with Haw Par for acquiring additional shares of UIC. The deal enabled UOL to raise their stake holdings of UIC from 44.7% to 48.9%, therefore may provided the company chance of statutory control over UIC.

Brief Background:

Data source: UOL annual report 2016UOL Group Limited (UOL) is one of Singapore’s public-listed property companies with an extensive portfolio of development and investment properties, hotels and serviced suites. The Company is engaged in investing in properties, subsidiaries, associated companies, and listed and unlisted securities. UOL operates in five segments:
1) Property development: engaging in development of properties for sale
2) Property investment: engaging in leasing of commercial properties and serviced suites;
3) Hotel operations: engaging in the operation of owned hotels;
4) Investments: engaging in the investment in quoted and unquoted available-for-sale financial assets;
5) Management services: engaging in the provision of hotel management services under the Pan Pacific and PARKROYAL brands, and project management and related services.

Financial Highlights:


Data source: ShareInvestor Financials

UOL group managed to maintain revenue growth, yet suffered from declining net profit margin over the recent five years. Reasons behind the decreasing profit margin are higher development cost included in cost of sales, less profit contributed by joint venture companies and loss on investment properties. With $538.5 million operating cash flow and $301.3 million free cash at the year end, UOL was at a favourable cash position. The P/E ratio of the company is 21.859, which is higher than property & construction industrial ratio of 10.428 and real estate development industrial ratio of 8.751. Gearing ratio is 0.24

Business Highlights:

Data source: UOL annual report 2016
Majority of UOL’s revenue was driven by the Property development segment, albeit Property investment contributed 51% profit. In short, Property investment is the most profitable segment of UOL’s business.

Property investment segment

Data source: UOL annual report 2016

Commercial offices, retail malls and serviced suites are three major types of UOL’s investment.
– Five commercial offices: Novena Square, United Square, Odeon Towers, Faber House and One Upper Pickering
– Three niche shopping malls: Velocity@Novena Square, United Square and OneKM
– Four owned serviced suites properties: Pan Pacific Serviced Suites Orchard, Pan Paci c Serviced Suites Beach Road, PARKROYAL Serviced Suites, Singapore and PARKROYAL Serviced Suites Kuala Lumpur
According to the graph, Odeon towers, Faber house and One Upeer Pickering are three main commercial office of UOL, and all of its property delivered good performance by presenting over 88% occupancy rate. In 2016, UOL accomplished acquisition of 101 High holborn, London, Uinted Kingdom, and purchased holborn island, a freehold mixed development in London. UOL exposed greatly to commercial office business through its stakes of UIC, thus may be benefited from the rallying industry. However, its acquisition activities expose UOL to higher potential risk due to the processing Brexit in UK and volatile exchange rate of currency.

Property development segment

UOL witnessed completion of two projects Thomson Three and Seventy Saint Patrick’s and kept launch new projects such as the en-bloc purchase of Raintree Gardens and Park Eleven in Shanghai. Price of private residential units kept decreasing in 2016, however, in the result of 1Q17, sales of its complete projects has brought total value of more than $558 million of 484 residential units to the company.

2017 Outlook

Data source: UOL 1Q17 result

The Group has launched its Clement Canopy, which is the 505-unit condominium developed through a 50:50 joint venture with UIC, at Clementi Avenue 1 in the first quarter of 2017. According to UOL’s 1Q17 result, the Clement Canopy had a good launch with 266 units (53% of total) sold by the end of 1Q17. Other developing properties are going to bring profit to the group in foreseeable future.

Analyst’s opinion:
The declining net profit is the major concern of UOL. As a property developer and investor, revenue can be recognised through ongoing project at certain stage, but profit is the true return distributed by projects. Thus, the improved quarterly profit in 1Q17 result was a good sign. Greater presence in foreign market such as UK and China through acquisition added extra business risk to the group due to exposure to economic fluctuation. However, clean balance sheet and solid cash position provide strong support to UOL’s ongoing projects, through which UOL keep generate revenue and profit. The news of UOL’s swap deal with Haw Par is positive for its investors as the potetial to get statutory control over UIC. Since 80% of its business is operated in local market, UOL is expected to benefit from the rallying real estate industry of Singapore.

 

Disclaimer 

All research reports are of the analysts’ personal opinions and do not in any way reflect InvestingNote’s official opinion. InvestingNote does not issue a buy or sell recommendation on any security, and any research paper published by The Signal Blog is purely for informative purposes. This research is based on current public information, but we do not represent it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates and forecasts contained herein are as of the date hereof and are subject to change without prior notification. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual InvestingNote users. InvestingNote users should consider whether the information in this research is reliable, and suitable for their particular circumstances and, if appropriate, seek professional advice. The price and value of investments referred to in this research and the investment income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments.

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