UOL Group Ltd: Valuation remains attractive

By Foo Sze Ming
Thu, 4 Feb 2010, 08:55:20 SGT

Residential property sales in Singapore tapered off in 4Q09 with just 58 units sold, a sharp contrast to the 531 units sold in 3Q09. Nevertheless, residential sales in January are expected to be better. For 1H10, UOL plans to launch two new projects – one at Dakota Crescent and another at Toh Tuck Road. We also expect the site at former Spottiswoode Park site to be launched this year. Based on the recent en-bloc sale of Dragon Mansion, UOL is now sitting on a paper gain of 17.3% for the Spottiswoode Park site. Recent market correction had been driven by tightening of credit in China, fiscal health of Euro zone and US politics issues. We believe that these factors have no major impact on the fundamentals of UOL. We view current market correction as a good opportunity to accumulate UOL, which remains as one of our top sector picks for 2010 and we reiterate out BUY rating with a fair value of S$4.55.

Better sales expected in Jan. Residential property sales by UOL Group (UOL) in Singapore tapered off in 4Q09 with just 58 units sold, a sharp contrast to the 531 units sold in 3Q09. We attribute the steep decline to the depletion of inventories after the strong sales during the preceding two quarters as well as the cooling measures introduced by the government in 4Q09. Nevertheless, residential sales in January are expected to be better. According to a Business Times report dated 26 Jan, UOL Group had sold 25 units at Double Bay Residences and 18 units at Meadows @ Pierce in January.

Standing by for new launches in 1H10. For 1H10, UOL plans to launch two new projects – one at Dakota Crescent and another at Toh Tuck Road, which is a joint development with LaSalle Asia Opportunity II fund. Both sites were acquired in 2H09 and could yield around 770 units in total. We also expect the site at former Spottiswoode Park site to be launched this year. This site is the only remaining site that UOL acquired during the peak of the previous upcycle. Acquisition price for the site was S$211.5m (through the collective sale of Oakswood Heights and Spottiswoode Apartment), which works out to be S$736 psf of GFA. Nevertheless, the en-bloc sale of Dragon Mansion in Dec 2009 re-affirmed the attractive pricing that UOL had paid for the land. Roxy-Pacific acquired Dragon Mansion at S$100.8m, which works out to be ~S$863 psf of GFA. This implies that UOL is now sitting on a paper gain of 17.3% for the Spottiswoode Park site.

Good opportunity to accumulate after recent correction: Maintain BUY. Recent market correction had been driven by three key factors – tightening of credit in China, fiscal health of Euro zone and US politics issues. We believe that these factors have no major impact on the fundamentals of UOL and the sharp correction had been a function of increased volatility and uncertainty in the equity market. Average daily trading volume has also declined from 1.1m shares to 0.8m shares since share price peaked in early January and we think that the decline in trading liquidity during the market correction could also be the reason for the sharp decline in share price. We view current market correction as a good opportunity to accumulate UOL, which remains as one of our top sector picks for 2010 and we reiterate out BUY rating with a fair value of S$4.55.

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