Asset enhancements continue to make UOL attractive to investors: analysts

Additional projects may offset 2020’s plunge in net profit.

UOL Group continues to be attractive for investors despite its 97% dive in net profits last year, according to analysts.

OCBC Investment Research said notwithstanding the COVID-19 pandemic, UOL was able to maintain a healthy balance with a low net gearing ratio of 29% and average borrowing cost of 1.35%.

“Given its solid financial position, UOL was able to initiate on two major rejuvenation projects. The first entails the development of a new standalone seven-storey building which would be an extension to its Odeon Towers Building and will comprise office and retail space. Secondly, UOL has obtained URA’s in-principle approval under the Strategic Development Initiative Scheme to redevelop its Faber House property into a 250-key hotel,” the investment research arm of OCBC Bank said.

These projects could potentially lead to higher gross fixed assets for UOL. The property firm may also benefit from a decline in development charge rates in the Hotel and Commercial categories over the past year.

Meanwhile, CGS CIMB raised UOL’s revalued RNAV/TP to $13.18/ $7.91 cents to reflect the value creation from UOL’s asset enhancement activities. The investment firm also predicted that UOL would more than double its net profit in 2021 to $289.9m from the previous $13.1m in 2020.

“We continue to like UOL for its diversified business model with a high proportion of recurring income. Re-rating catalyst could come from a faster-than-projected recovery of its hotel operations. Downside risk: slower-than-expected pace of residential sales,” said CGS CIMB analyst Mun Yee Lock.

OCBC Investment Research agreed that UOL could bounce back from the plunge in profits. They projected that the property firm will reach a net profit of $339.7m for FY 2021. However, it disagreed that UOL has a slow pace of residential sales.

“Given the relatively firm demand for its residential projects, management highlighted that it was looking to replenish its Singapore landbank, but would bear in mind the increase in construction costs and potential property cooling measures,” the investment research firm said.