2 culprits behind OUE's disappointing S$14.9m net profit

Only 15% of analysts' full-year forecast.

Investment properties According to CIMB, OUE's core net profit of S$14.9m formed 15% of consensus’s full-year estimates. It noted that OUE’s 1Q13 result was below expectations due to 1) higher admin expenses, and 2) lower-than-expected associate income.

Here's more:

Revenue in 1Q13 rose 8.4% yoy to S$105m as higher revenue recognitions in property development offset lower hospitality and property investment revenues.

Hotel revenue dipped 2.3% yoy to S$59m, mainly due to lower RevPAR achieved by one of its China hotels in the quarter. OUE is guiding for a more subdued tourism sector in Singapore although room rates are expected to remain firm. 1Q13 saw the maiden effects of the departure of DBS Bank from DBST as revenue from investment properties fell 19% yoy to S$27m.

Administrative expenses in 1Q13 rose from S$8.6m to S$14m due to an increase in corporate development activities. Associate income, despite rising 1.3x yoy to S$4.6m, was below expectations as we suspect rent-free periods still in place for new tenants in ORP2 dragged down rental income.

We were previously made to understand that the Grade A office building was around 70% leased. Admin costs and associate income were the main reasons for the variance from our estimates. We will provide more updates post an earnings conference call by management.

While the result weak, it is unlikely to drive OUE’s share price in the nearterm. Potential RNAV accretion and higher dividend pay-outs from its planned REIT listing should remain the key stock catalysts, in our view.