Straits Times: Sat, Jul 07
EVEN though the UOL Group is one of Singapore's most valuable property developers, with a market value of $3.9 billion, it is rarely on the radar screen of international investors.
But that perception may be about to change, according to UBS analyst Adrian Chua in his recent report 'Index inclusion, a game changer?'
The report notes that the counter will be included in an international market indicator - the FTSE Epra/Nareit Global Development Index.
This could help to explain a 19.5 per cent surge in UOL's share price since the start of last month. Daily average volume for the period has also risen sharply to 1.55 million shares, from 924,000 shares in the past year.
In the same period, City Developments rose 14.5 per cent, while CapitaLand was up 19.2 per cent.
Mr Chua said: 'We believe that UOL's index inclusion could lead to increased liquidity going forward, a potential MSCI inclusion and allow UOL to trade at a narrower discount to revalued net asset value (RNAV).'
What makes UOL attractive to investors is that about 90per cent of its assets are in Singapore.
'About 16per cent of its RNAV is in Singapore residential, but its asset turn strategy had meant 75per cent of this has been pre-sold,' Mr Chua said.
Its directly held investment properties are in fringe office and fringe retail areas, which gives its assets a more defensive tenant profile.
UOL's low debt gearing of 33per cent also gives the property developer 'sufficient financial strength to replenish its land bank', he added.
Macquarie Equities Research analyst Brandon Lee, who just started coverage on UOL, noted in a recent report that the well-diversified business model of the company makes it the 'most defensive real estate play among its peers'.
UOL had also achieved a track record of transforming unenticing shopping malls into niche complexes with specialised themes and target markets such as Novena Square and United Square.
'Historically, its fringe-central area commercial properties have generated solid occupancies of over 90 per cent. As such, income from investment properties should remain stable going forward,' he added.
The only snag is the increasingly competitive residential market scene, which may make it difficult for UOL to expand its land bank or result in overpaying for land, said Mr Lee.
The worry over the ability of UOL to replenish its land bank was also the reason for OCBC Investment Research to cut its rating on UOL to hold recently.
'Management has indicated that they are actively looking out for acquisition opportunities and with an ample supply of residential sites in the government land sales programme, we see good odds that UOL would acquire new sites in the second half,' it added.
For the week, UOL rose 15 cents to $5.08.
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