UOL Group Ltd: Mass market boom

By Foo Sze Ming
Wed, 15 Jul 2009, 09:00:57 SGT

Following the success of the Double Bay Residences (DBR), UOL will be launching another mass market project – Meadows @ Pierce. Launch price for this project is expected to average around S$900 psf, which is higher than the S$800 psf that we have assumed in our valuation. We estimate the breakeven price of this project to be ~S$670 psf, which could potentially yield a healthy profit margin of 26% for UOL. In the high-end segment, sales at Nassim Park Residences are also picking up. We are now raising our RNAV estimate to S$4.11 and the discount rate on our valuation of UOL’s development and investment properties has also been reduced from 40% to 30% as the degree of uncertainty in our valuation is lower now. Our fair value has now been raised to S$3.56 (previously S$2.91). We maintain our HOLD rating on UOL and will turn buyers around S$3.00-S$3.10.

Meadows @ Pierce launching soon. Following the successful launch of the Double Bay Residences (DBR), UOL will be launching another mass market project – Meadows @ Pierce, in 2-3 weeks’ time. According to Knight Frank, the marketing agent for the project, this 479-unit freehold residential development at Upper Thomson Road consists of a refurbished tower block (14 storey) and three 5-storey blocks and will include small-size units to cater for the market demand. Launch price for this project is expected to average around S$900 psf, which is higher than the S$800 psf that we have assumed in our valuation. UOL will also be able to save on the construction cost through the refurbishment of the existing 14-storey tower. We estimate the breakeven price of this project to be ~S$670 psf, which could potentially yield a healthy profit margin of 26% for UOL.

Benefiting from spillover interest to high-end segment. In the high-end segment, it has been reported that two units at Nassim Park Residences were sold at prices above S$3,000 psf, with one of them at S$3,813 psf and an option was issued for the sale of a fourth-level unit at S$3,081 psf last weekend. We think that this is a commendable achievement, given that the high-end segment has only seen marginal improvement in buying interest and UOL had managed to sell these units without reducing prices.

Fair value raised to S$3.56; Maintain HOLD. We are now raising our RNAV estimate to S$4.11 (previously S$3.57) to reflect the increase in valuation of UOL’s listed investments, lower risk-free rate of 2.4% and higher selling price assumption for Meadows @ Pierce (from S$800 psf to S$900 psf). The discount rate on our valuation of UOL’s development and investment properties has also been reduced from 40% to 30% as the degree of uncertainty in our valuation is lower now, with the successful launch of DBR and the stabilization of the economy and property market. While we think fundamentals do not support a sustainable recovery in Singapore property market yet, we believe that UOL is now better positioned to weather another downturn as it will be left with just one unlaunched project in Singapore – the former Spottiswoode Park site, after the launch of Meadows @ Pierce. Our fair value has now been raised to S$3.56 (previously S$2.91). We maintain our HOLD rating on UOL and will turn buyers around S$3.00-S$3.10.

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