Special dividend of 20 Scts
2Q13 results were weak mainly due to higher expenses. However, the highlight was the much-anticipated special dividend announced in view of the listing of OUE H-REIT. The balance sheet is due to strengthen and OUE can focus now on asset enhancements and possibly more acquisitions.
2Q13 core earnings was below expectations at 17% of our full-year estimate (1H13 at 36%) and 15% of consensus. We cut our FY13-15 core EPS by 20-47% but lift our target price (20% RNAV discount) to S$3.32 on the loss of income and accretion to RNAV from the REIT listing. Maintain Outperform, with catalysts from stronger office leasing and potential acquisitions.
Hit by higher costs again
2Q13 saw higher operating expenses once again, which led to a 40% yoy decline in core earnings. We understand this comprised 1) an additional S$2m-3m yoy spent on marketing and headcount expenses relating to Twin Peaks and 2) another additional S$2m-3m spent on legal expenses relating to the final closing of the US Bank Tower deal. Gross margins were also weaker yoy due to weaker performance from 6 Shenton Way Tower 1. However, the top-line remains robust, rising 16% yoy on higher occupancy at OUEB (c.90%+) and stronger sales recognition from Twin Peaks.
Special dividend declared
OUE declared a special dividend of 20 Scts and an interim dividend of 1Sct, in view of its listing of OUE H-Trust.
The uncertainty of the REIT listing is now over. We expect OUE’s net gearing to drop to 35% in FY13, on impending REIT cash proceeds and a recognition of c.S$1.1bn revaluation gain. Next up will be the execution of asset enhancement initiatives to revamp its retail mall at ORP and the retail podium at 6 Shenton Way. Also we expect management to be on the lookout for more acquisitions, as it begins to build its fund management business. The stock’s valuation remains attractive at 31% discount to RNAV vs. the sector average of 28%, backed by a FY13 dividend yield of 7.8%.
Publish date: 02/08/13