UOL’s profit dips 12% to S$101m in 3Q11

Results above consensus. UOL announced 3Q11 PATMI of S$101m, down 12% YoY mostly due to the absence of contributions from Nassim Park Residences (TOP 1Q11). 9M11 core EPS of S$0.57 beat the street (FY11 cons: S$0.675) but came in within our expectations, forming 81% of our FY11 earnings forecast which we keep intact. 3Q11 revenue came in 37% higher YoY at S$413m with increased revenue from the development property segment and added contributions from two ParkRoyal assets in Kuala Lumpur and Melbourne.

Bedok Reservoir project to launch this month. We expect UOL to launch its 577-unit development at Bedok Reservoir later this month at indicative price levels of S$1.1k - S$1.2k psf. Given that CapitaLand would likely launch its 583-unit Bedok Residences in the same window at similar price levels, we are cautious about the pace of sales going forward in a competitive landscape and as macro-economic uncertainty continue unabated.

In China, the Tianjin site would be launched shortly at ~RMB20k psm and we anticipate the site would perform well, given its location and expressions of interest from buyers so far. Lion City is expected to be launch-ready by 1Q12 but management would take a wait-and-see approach to its exact launch timing, depending on market conditions.

Land-banking is key going forward. In our view, UOL's bid for the Sims Ave site showcased management's sharp land- banking ability despite being rejected for being too low. With UOL's land-bank almost depleted, management would be actively seeking land going ahead. Note there is still dry powder on the balance sheet with a net gearing of 0.38 and S$282m cash, and ample land-banking opportunities ahead through the government land sales program. En-bloc acquisitions, however, appear more unlikely with sellers not lowering their expectations sufficiently at present.

Expect outperformance; maintain BUY. We reiterate our thesis that UOL is sheltered from residential uncertainty with its limited land-bank, and would outperform its peers as physical prices soften. Management also has a solid track record of accretive land acquisitions and navigating the property cycle well.

We expect sales performances at the Bedok project to be a key driver of its share price in the weeks ahead. Our fair value estimate is lowered to S$5.17 from S$5.48 as we apply a heavier 25% discount to RNAV to reflect heightened macro-economic risks since our last update.