PROPERTY and hospitality group UOL Group : U14 +0.29% on Thursday (Aug 10) posted a 63.6 per cent fall in net profit to S$135 million for the six months ended Jun 30, 2023, from S$371 million that it posted in the corresponding period a year earlier.

 

This came as revenue fell 11 per cent to S$1.4 billion over the same period, from S$1.5 billion in the year-ago period.

 

In its bourse filing, the group attributed the fall in net profit to significantly lower attributable fair value gains on its investment properties of S$3.5 million in the first half of the year, against S$190 million over the same period last year.

 

Earnings per share for the period stood at S$0.1599, compared with S$0.4394 in the same period the year before.

 

The group noted that revenue from its property development segment fell 32 per cent to S$676.3 million due to lower contributions from Avenue South Residence and The Tre Ver in Singapore, as well as Park Eleven in Shanghai.

 

Still, the decline in the segment was partly offset by higher progressive revenue recognition from AMO Residence and The Watergardens at Canberra in Singapore.

 

On its outlook for the segment, UOL expects growth to be subdued by property cooling measures, macroeconomic headwinds and a higher supply of homes in the next 12 months.

 

Group chief executive Liam Wee Sin also predicts that sales rates during launch weekends will return to a &ldquo more normalised rate&rdquo of 25 per cent to 50 per cent. 

 

The higher sales rates witnessed last year &ndash of 60 per cent and above &ndash were primarily due to low unsold inventory and launch pipeline then, he said. &ldquo To give a sense&hellip developers have launched to date about 6,300 to 6,500 units, excluding executive condos (ECs) as against 4,528 units for the whole of 2022.&rdquo

 

&ldquo And developers have sold to date about 4,800 to 5,000 units, excluding ECs, as compared to 7,099 units for the whole of 2022,&rdquo he added. 

 

In terms of land stock, Liam highlighted that the group&rsquo s successful tender of the Tampines Avenue 11 site last month meant it has &ldquo replenished&rdquo its stock in the suburban Outside Central Region, which is still in tight supply. 

 

The five-hectare site, which is slated to launch in the second half of 2024, will be one of the largest integrated retail cum residential developments with a transport hub and direct MRT connectivity, he said. 

 

Meanwhile, revenue from the hotel operations segment rose 66 per cent to S$341.5 million as these benefited from a rebound in tourism, with such properties in Singapore recording the largest increases, the group said.

 

UOL group chief executive Liam Wee Sin said that the group continues to review its hotel portfolio and hopes to unlock value at an &ldquo opportune&rdquo time. In July, it had entered into an agreement to sell Parkroyal on Kitchener Road to an entity of Worldwide Hotels, the owner of Hotel 81 in Singapore, for S$525 million.

 

The group also noted that finance expenses rose 101 per cent to S$93.9 million, and said this was due to the steep increase in interest rates, as well as new loans drawn. The new loans went towards redevelopment and asset enhancement initiatives at different properties, as well as to bid for new sites.

 

&ldquo Consequently, the weighted average interest rate on group external borrowings was 3.46 per cent in 1H23 against 1.74 per cent for 1H22,&rdquo the group said.

OCBC Investment Research (OIR) analysts are keeping &ldquo buy&rdquo on UOL Group U14 0.00% with a fair value estimate of $8.26, highlighting the company' s resilient Singapore residential portfolio notwithstanding the pandemic as well as several rounds of property cooling measures by the Singapore government.

 

The analysts note that UOL has been active on capital recycling activities over the past few months. Its proposal of the en bloc purchase of the freehold Meyer Park Condominium for $392.2 million is progressing, as the Strata Titles Board has issued an order of sale on July 30. This paves the way for the deal to be completed, the analysts add.

 

UOL had also announced on July 11 that it had been awarded a 99-year integrated residential and commercial site at Tampines Avenue 11 at a tender price of $1.2 billion. This is part of a 50:50 joint venture (JV) with CapitaLand Singapore Ltd.

 

On the divestment front, UOL entered into a sale and purchase agreement for the disposal of its entire stake in its 542-room PARKROYAL on Kitchener Road hotel for a consideration of $525 million. This is 24.1% above the freehold property&rsquo s valuation as at December.

 

The company believes this would be a good opportunity to unlock the value of its investment at an attractive price, given expected divestment gains of $446.2 million. Post-divestment, the pro forma accretion to UOL&rsquo s FY2022 net tangible assets (NTA) per share would be 4.2%, the analysts point out.

 

For 2023, the analysts forecast private residential price growth of up to 3%, while private new home sales would range between 6,000 to 6,800. UOL&rsquo s recent Pinetree Hills project launched in mid-July sold only 149 units as at July 30, or 29% of the total 520 units in the project at an average selling price of $2,367 per sq ft, based on data extracted from URA REALIS.

 

&ldquo Better fortunes likely exist for UOL&rsquo s hotel operations in the near term, especially in Singapore, where industry revenue per available room (RevPAR) growth has been robust. 1HFY2023 RevPAR jumped 50.5% y-o-y to $213.6, although we note that monthly y-o-y growth has been moderating, partly due to low base effects wearing off,&rdquo the analysts add.

 

OIR expects UOL&rsquo s financial position to remain healthy, as it has been able to balance its investments with divestments. In terms of valuation, UOL is trading at consensus 12-month forward P/B multiple of 0.53x, which is 1.1 standard deviations below its 10-year average of 0.62x.

 

Based on OIR&rsquo s revalued net asset value estimate of $14.37, UOL&rsquo s discount stood at 51.6%, which the analysts believe reflects risks of additional property tightening measures by the Singapore government should home prices continue to run ahead of economic fundamentals.