_{By Eli Koksiong Lee 
Mon, 13 May 2013, 09:51:12 SGT}

UOL’s 1Q13 PATMI decreased 15% YoY to S$71.7m mostly due to a weak contribution from its hotel segment. 1Q earnings now make up 19% of our full-year forecast, which we judge to be generally within expectations and is tracking marginally below due to lumpy progress recognition at development projects. In addition, the group has made a cash offer of S$2.55 per share (9% premium over last transacted price) to delist PPHG (Pan Pacific Hotels Group), conditional on the shareholder approval. We see this as a sensible move which would consolidate the group’s hotel assets at a fairly reasonable price. That said, from our discussions with management, it appears unlikely that material operating changes, i.e., a major re-structuring or REIT listing, are in store for PPHG assets. Maintain HOLD with a higher fair value estimate of S$7.16 (20% RNAV disc.), versus S$6.01 previously, as we work into our valuation model higher prices of listed holdings and the Sengkang acquisition.

1Q13 PATMI down 15% at S$77.7m
UOL’s 1Q13 PATMI decreased 15% YoY to S$71.7m mostly due to a weak contribution from its hotel segment (listed hotel subsidiary PPHG saw its 1Q13 PATMI dip 45%% to S$9.5m). 1Q earnings now make up 19% of our full-year forecast, which we judge to be generally within expectations and is tracking marginally below due to lumpy progress recognition at development projects. 

Proposal to delist Pan Pacific Hotels Group
The group has made a cash offer of S$2.55 per share to delist PPHG (Pan Pacific Hotels Group), conditional on the shareholder approval. The offer price represents a 9% premium over PPHG’s last transacted price of S$2.34 and gives shareholders, in UOL’s view, a reasonable exit alternative which may not be available given low trading liquidity and free float (UOL owns 81.57% and UOB 7.99%). We see this as a sensible move which would consolidate the group’s hotel assets at a fairly reasonable price, given our estimated RNAV of S$2.80 for PPHG. That said, from our discussions with management, it appears unlikely that material operating changes, i.e., a major re-structuring or REIT listing, are in store.

Still cautious on residential sector
UOL remains cautious on the residential sector and are more likely to “replenish land” than to land-bank aggressively. Going forward, it looks to launch its Bright Hill (445 units) and St Patrick’s Garden (186 units) projects in 2H13. The group also recently won a new GLS site at Sengkang West Way at S$262.1m which is expected to yield 550 homes. In addition, UOL reports pre-commitment levels at the One KM mall to be around 55%.

Maintain HOLD with higher S$7.16 fair value
We see mid-term catalysts to be upcoming launches at Bright Hill and St. Patrick’s and see PPHG’s potential privatization as a mild positive for the stock. Maintain  HOLD  with a higher fair value estimate of S$7.16 (20% RNAV disc.), versus S$6.01 previously, as we work into our valuation model higher prices of listed holdings and the Sengkang acquisition.

  ...last done: $7.26...