Price at 7 Nov 2013 (SGD) 2.39
Price target - 12mth (SGD) 2.98
52-week range (SGD) 3.19 - 2.34
3Q results fall short on one-off expenses
OUE reported 3Q PATMI of S$13.4m, down 43% on account of one-off cost items and decreased contributions on lower occupancies at 6 Shenton Way. 3Q revenues rose 17% YoY on account of sales at Twin Peaks, and contributions from US Bank Tower.
One off expenses hit earnings, revaluing assets, exploring commercial REIT
The company attributes the 27% YoY rise in operating expenses from legal and professional fees due to the listing of OUE Hospitality Trust, upgrading works at hotels and S$4.8m in losses from the sale of its two hotels in China. Finance costs rose 26% YoY on higher borrowings and losses on derivatives. The group also revalued its properties, and took a S$73m gain on its US Bank Tower asset, while revaluing its OUE Bayfront building down by S$72m, resulting in a net gain of S$0.9m. Management restated that it is exploring the establishment of OUE Commercial Trust, and plans to inject OUE Bayfront as part of the initial portfolio. Recall that earlier this quarter, the company announced that it intends to submit a draft circular to the SGX for review, and the proposed REIT has entered into a conditional sale and purchase agreement with Lippo China Resources for the Lippo Plaza property.
Revising earnings and target price, Maintain Buy, RNAV of S$4.58
Taking into account the divestment of its China hotels, we adjust our FY13-15 core net profit estimates by -10%. We also widen our target discount to 35%, back to long term averages, reflecting the derating of the larger cap developer stocks within the sector, and the lack of visibility on the redeployment of capital which would help offset the hollowing out of the asset base of the company. Hence we, cut our target price by 13% to S$2.98, implying 25% upside. We believe that value unlocking moves such as the proposed commercial REIT could help to narrow NAV discounts, maintain Buy.
Publish date: 07/11/13