Thursday, October 3, 2013

Overseas Union Enterprise : Yet Another Special Dividend In Sight (UOBKH)

Overseas Union Enterprise
Share Price S$2.59
Target Price S$3.57
Yet Another Special Dividend In Sight

OUE is exploring the listing of a commercial REIT with OUE Bayfront included in the initial portfolio, which could result in another similar special dividend as the Hospitality REIT (10-20 S cents/share). The impact from the sale of its China hotels is minimal. We maintain BUY with a reduced target of S$3.57 based on 20% to its revised RNAV of S$4.46, factoring in adjustments for special dividends and office property values.

What’s New
• Commercial REIT in the offing. OUE is exploring the establishment of a commercial REIT with an initial portfolio that is expected to include OUE Bayfront and other commercial assets owned by Lippo China Resources.

Stock Impact
• Yet another special dividend in sight. OUE Bayfront was last valued at S$1.08b and has a committed occupancy rate of over 95% at an average rent of over S$10.30 psf pm. Lippo China Resources’ commercial property assets that could potentially constitute the intial portfolio include Lippo Centre in Hong Kong and the Lippo Plaza in Shanghai. A successful listing could mean that there could be another similar special dividend as the Hospitality REIT (10-20 S cents/share) and also serve as a vehicle to realise value for its other commercial properties in Singapore (6 Shenton Way and Towers One and Two and One Raffles Place).

• Rationalising its China portfolio. OUE entered into an agreement with Gold Pot Developments Limited on 18 September for the sale of its China hotels valuing Meritus Shantou hotel at S$61.m and Meritus Mandarin Haikou Hotel at S$58.7m. OUE is expected to recognise a marginal gain of S$0.4m based on the carry-in net tangible asset value of S$119.5m for the two properties. The impact on the RNAV and earnings is minimal. OUE Hospitality Trust had earlier on exercised its Right of First Refusal (ROFR), declining the acquisition as the properties would not be DPU accretive at the offer price. The transaction is expected to be completed by 30 Sep 13. We understand from management that it is part of their portfolio reconstitution strategy to rationalise their China hotel portfolio and redeploy the proceeds to other suitable acquisitions.

• Adjustment to RNAV post-special dividend payout. OUE went exdividend on 25 September, correcting over 8.5% which we believe is overdone. We expect the RNAV impact to be limited at around 6% post the 21 S cents special dividend payout. This is mitigated by higher valuations for its commercial properties on the better-than-expected leasing momentum and rental levels. The special dividend will be paid on 9 Oct 13. Overall, we have reduced our RNAV by 2% to S$4.46.

Earnings Revision/Risk
• We have adjusted our 2013-15F earnings marginally to factor in the divestment of Meritus Shantou and Meritus Mandarin Haikou Hotels.

• Maintain BUY with a reduced target price of S$3.57/share, pegged at 20% discount to our revised RNAV of S$4.46/share. OUE is trading at a deep 42% discount to its RNAV.

Share Catalysts
• Pick-up in office leasing activity.
• Positive newsflow from increasing visitor arrivals to Singapore.

Source/Extract/Excerpts/来源/转贴/摘录: UOBKH-Research,
Publish date: 30/09/13

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