Written By Stock Fanatic on Monday, March 3, 2014

  OUE rewarded shareholders with a special 7.1% dividend yield largely from 1-for-6 distribution of OUE H-Trust units. Ongoing asset enhancements and developments will improve existing asset base, while the establishment of a capital recycling REIT platform will enable OUE to monetise the assets once stabilised. Management sees value overseas in Indonesia, US and Japan for acquisitions. 

Maintain BUY and target price of S$3.04, based on a 30% discount to RNAV of S$4.34/share.

RESULTS

■ Results in-line. Overseas Union Enterprise (OUE) reported 2013 attributable loss of S$36.6m, largely due to net fair value losses on investment properties (S$46.7m), tax provisions (S$29.7m) and forex losses (S$15.9m). Excluding these one-off items, attributable net profit of S$49.5m is in line with our expectations.

■ 2013 revenue was up 4.5% yoy due to higher revenue recognition from sale of units at Twin Peaks (S$62.7m in 2013 vs S$31.4m in 2012) and revenue contribution from newly-acquired US Bank Tower, while gross profit fell 11.2% yoy due to lower occupancy at OUE Downtown and the sale of two China hotels. Operating profits fell 22.9% due to higher administrative and marketing expenses.

■ Hospitality division accounted for the bulk 52% of revenues in 2013 (57% in 2012) followed by investment property segment at 32%.

■ NAV/share down 8.9% yoy at S$3.18/share after factoring the special dividend of 20 S cents/share.

STOCK IMPACT

■ 7.1% yield with distribution-in-specie of OUE H-Trust and cash dividend. OUE has announced a 1-for-6 distribution-in-specie of OUE Hospitality Trust (OUE H-Trust) (equivalent to 14.8 S cents dividend/6.1% yield) following the divestment of OUE Bayfront to OUE Commercial REIT. OUE will retain 34% of OUE H-Trust post divestment, down from 45% currently. Books closure is on 20 March, with the crediting by 31 March. In addition, OUE also announced a final cash dividend of 2 S cents/share, bringing total cash dividend for 2013 to 23 S cents/share.

■ S$1.1b gain in 2014 with deconsolidation of OUE H-Trust following the distribution-inspecie from the revaluation of Mandarin Orchard. OUE highlighted that it currently has no immediate plans to further distribute additional cash dividends or pare down its stake in OUE Commercial REIT.

■ Diversification into Indonesian residential investment a possibility with low capital requirements (~US$40m) and potential for collaboration with OUE H-Trust to jointly acquire plots of land in Jakarta. While management does not see immediate value in Singapore property, small to mid-sized developers, which are trading at substantial discounts to RNAV are attractive.

■ Exploring residential conversion for US Bank Tower with 30-50% of the space converted into residential units for subsequent strata resale. In addition, the One Raffles Place retail podium is expected to open in 1H14 and is about 72% pre-committed.

■ Establishing a capital recycling platform following the listing of OUE Commercial Trust on 27 Jan 14 will enable OUE to focus on higher-value and higher-risk development activities while unlocking capital from stabilised assets through divestment to OUE-managed REITs. Key pipeline properties for OUE's-managed REITs and trusts include OUE Downtown, One Raffles Place and US Bank Tower (for OUE C-REIT) and Crowne Plaza Changi Airport and serviced apartments in OUE Downtown (for OUE H-Trust).

■ Deriving a stable income stream through its stake in its trusts and property management platform. OUE intends to maintain a 34% stake in OUE H-Trust post the distribution-inspecie, and also holds a 50% stake in OUE C-REIT following the IPO.

  Technical Analysis

Daily Chart

EARNINGS REVISION/RISK

■ We have tweaked our 2014-15 earnings forecasts by 0-2% and introduced 2016 forecasts.

VALUATION/RECOMMENDATION

■ Maintain BUY with an unchanged target price of S$3.04, pegged at a 30% discount to our RNAV of S$4.34/ share. OUE is trading at a deep 45% discount to its RNAV.

SHARE PRICE CATALYST

■ Successful completion of asset enhancements in commercial and hospitality properties.

■ Acquisition of undervalued asset with redevelopment potential. (Read Report)

■ NAV/share down 8.9% yoy at S$3.18/share after factoring the special dividend of 20 S cents/share.

 

Overseas Union Enterprise Feedback from management briefing: UOBKH

(OUE SP/BUY/S$2.35/Target: S$3.04)

FY14F PE (x): 30.6

FY15F PE (x): 27.0

Results in-line. Overseas Union Enterprise (OUE) reported 2013 attributable loss of

S$36.6m, largely due to net fair value losses on investment properties (S$46.7m), tax

provisions (S$29.7m) and forex losses (S$15.9m). Excluding these one-off items,

attributable net profit of S$49.5m is in line with our expectations.

Maintain BUY with an unchanged target price of S$3.04, pegged at a 30% discount to

our RNAV of S$4.34/ share. OUE is trading at a deep 45% discount to its RNAV.