Why UOL is analysts’ top stock pick among property developers

Singapore-based property developer UOL Group is a strong ‘buy’ idea amid brisk private home sales in the market, research teams said.

  • UOL Group Ltd (SGX: U14) share price falls to S$7.84 per share
  • OCBC analysts like UOL’s ‘healthy’ gearing and decreased inventory risks
  • Citi said the group can explore several options to increase its stake in UICi
  • Valuations of Singapore developers look ‘inexpensive’, according to CIMB
  • Buy and sell UOL shares with an IG account

Why do analysts favour UOL?

Shares of UOL finished trading last Friday (23 April 2021) at S$7.84, down 0.5% on the day.

The OCBC research team’s preferred stock pick among Singapore developers is UOL, based on current property prices. It recommended ‘buy’ on UOL shares, with a fair-value estimate of S$8.91.

The analysts like the fact that the company has been lowering its inventory risks and is also seeking to unlock value for shareholders via redevelopment projects.

Besides, UOL’s net gearing ratio of 0.29 times as of end-2020 is at ‘a very healthy level’, OCBC wrote.

Similarly, CIMB’s Lock Mun Yee said UOL was an ‘add’, and gave a target price of S$7.91 recently.

‘UOL has a high recurring income base, supported by rentals, hotel operations, and investment holdings,’ Lock wrote.

What are UOL’s next steps in relation to UIC?

The group also has ‘good office exposure’ through its 50.4%-owned subsidiary, United Industrial Corp (UIC) (SGX: U06), CIMB added.

Citi analyst Brandon Lee noted that UOL has always intended to further expand its stake in UIC, which could result in ‘major operational synergies or efficiencies, especially in the area of asset redevelopment or rejuvenation’.

To further boost its interest in UIC, the group can explore options such as continuing to purchase shares via open or off-market transactions, or acquire JG Summit’s 37% stake, Lee said. Citi recommended ‘buy’ on UOL shares with a S$8.87 target price.

Meanwhile, on Friday, almost all shareholders of UIC approved its proposed name change to Singapore Land Group Limited.

Brisk private home sales in March

In the Singapore private residential sector, developers sold 1,296 units in March 2021, almost double from the year-ago period.

However, OCBC pointed out that the robust momentum in volumes as well as the buoyant price growth in the first quarter will likely continue to draw scrutiny from the authorities.

‘We believe the current property market upcycle has been driven largely by genuine homebuyers, especially aspiring HDB upgraders who are purchasing a private home for staying,’ OCBC added.

Aside from UOL, other developers in the Singapore market include City Developments Limited (CDL) (SGX: C09) and CapitaLand Limited (SGX: C31).

CIMB’s Lock reiterated her ‘overweight’ recommendation on the overall sector, as developers’ valuations ‘still look inexpensive’, with their shares trading at a 45% discount to revalued net asset value.

CDL attracted a ‘buy’ rating with a S$9.12 fair value from OCBC, and an ‘add’ call and S$8.97 target price from CIMB.

Shares of CapitaLand garnered a ‘hold’ recommendation with a S$4.03 fair value from OCBC, while CIMB rated it ‘add’ with a S$4.04 target.

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