"We view the group’s unlocking value from non-core assets and streamlining of balance sheet as positive," says DBS on Sept 11.
DBS points out that UOL has been stepping up its portfolio reconstitution efforts. Besides Kinex, via subsidiary Singapore Land Group, it sold Stamford Court last year and the year before, its Parkroyal hotel at Kitchener Road.
The sale is an indication of UOL's ability to monetise mature assets at fair valuations and redeploy capital towards higher-yielding opportunities, says DBS, referring to recent acquisitions such as 388 George Street and Varley Park student accommodation.
"While gearing remains healthy and not a concern, we like that UOL is streamlining its balance sheet and focusing on its core expertise," adds DBS, whose target price is a 50% discount to UOL's RNAV of $14.60.
See also: PhillipCapital raises target price on LHN ahead of spin-off listing
Brandon Lee of Citi is similarly positive on this deal.
He points out that Kinex has difficulty maximising rents given its relatively small size and "intense" competition from other nearby malls City Plaza, PLQ Mall, Paya Lebar Square and SingPost Centre - all of which are within walking distance.
Lee likes UOL also for its improved gearing, where capital is redeployed to residential developments and to fund capex for large-scale commercial and mixed projects such as Clifford Centre, and potentially Marina Square, and generate more attractive returns.
See also: RHB's Yeo raises target price for Food Empire to $2.72
He believes that valuations, at 0.54 P/B, remain undemanding. Lee has kept his "buy" call and $9.60 target price, which is pegged to a 40% discount to his RNAV of $16.
The 40% discount to RNAV is the same quantum applied to CDL, which together with UOL, are what Lee calls "the most direct proxies" to the property market of Singapore.
From Lee's perspective, four factors could help narrow the discount to UOL's RNAV: better-than-expected take-up for 2 Singapore residential launches in 2HFY2025; more details on Marina Square’s redevelopment; asset divestments; and share buybacks.
UOL Group shares changed hands at $7.65 as at 3.27 pm, up 3.38% thus far today and up 48.26% year to date.
