Not vested. From UOL:-
S$1.1b of unrecognized revenue from existing projects. Development projects launched in the last two years should provide good earnings visibility for UOL until FY10. Majority of these units were fully taken up and we estimate total revenue of S$1.3b from UOL's existing development projects.
Of this, S$1.1b have yet to be recognized and the bulk will only be recognized in FY08 and FY09.
Future launches in mass-mid market segments. Having launched the Nassim Park Residences, its remaining land banks fall in the mid and mass property market segments, which are less prone to price corrections going forward. With a substantial pipeline of projects currently under development, we see no rush for UOL to launch new projects in the near future, especially with soaring construction costs.
With UOL's strong balance sheet and cashflow from the current projects coming in over the next few years, any delay in launches is unlikely to have a significant impact on its liquidity and debt servicing position.
Potential value to be unlocked. UOL's holdings in UOB and UIC shares offer the potential for the unlocking of value for shareholders. UOL's stakes in UOB and UIC are currently valued at S$1,187.9m or S$1.49 per UOL share (as at 4th July 2008) and make up 45.1% of UOL's current market cap. However, we believe that any move to unlock this value will only occur over the mid to long term as we see little liquidity needs for UOL, with its low gearing and cashflow from development properties in the next 2 years.
In addition, with further weakness in the property market expected, developers such as UOL are likely to stay conservative with acquisitions and thus we do not foresee capital requirement for acquisitions over the near term.
Resume coverage with BUY. We resume coverage with a BUY rating and fair value of S$4.94. This is based on the market values of UOL's holdings in listed entities (UOB, UIC and Hotel Plaza) and the RNAV of its development projects and investment properties, which we ascribe a discount of 30% to take into account the weakening property market.
We like UOL for its low gearing, diversified revenue stream, high margin of safety for its RNAV, low land bank exposure to the high end luxury segment and the potential to unlock value. Key risks to our valuation include weakness in the property market and de-rating of UOB, UIC and Hotel Plaza.